February 5, 2013 / 6:15 PM / in 5 years

UPDATE 2-IMF says Bank of Italy was vigilant on Monte Paschi

By Giselda Vagnoni

ROME, Feb 5 (Reuters) - The International Monetary Fund said on Tuesday that Italy’s central bank did a good job in its oversight of crisis-hit Monte dei Paschi di Siena, in a boost for ECB chief Mario Draghi, who led the Bank of Italy as Monte Paschi ran into trouble.

An IMF team was in Italy until last week to conduct the first part of an assessment of Italy’s financial system and Monte Paschi was among the issues it discussed with the BoI.

“The IMF team’s preliminary view is that the Bank of Italy (BoI) took timely and appropriate action - within the limits of the legal framework - to address problems at MPS,” the IMF’s chief spokesman Gerry Rice told Reuters.

“Oversight was close and supervisory action escalated appropriately as MPS’s problems became acute,” Rice said in a written statement.

The central bank has been widely criticised over its oversight of Monte Paschi, which is set to tap 3.9 billion euros of state loans and whose former management is under investigation for fraud and other financial crimes.

The IMF’s backing will be particularly welcomed by Draghi, who was BoI governor between 2006 and 2011 when the opaque derivatives trades Monte Paschi officials allegedly set up to massage its accounts were conducted and came to light.

He has not yet commented on the case, but can expect to be questioned on it by reporters at the ECB’s monthly news conference on Thursday.

The world’s oldest bank has been at the centre of a financial and political storm since last month when it revealed that it faced losses of some 720 million euros ($986 million from those derivatives and structured finance operations.


The BoI, which is itself being investigated by prosecutors for an alleged lack of vigilance in a case brought by a consumer body, has defended itself both in written statements and in comments by current Governor Ignazio Visco.

Last month it approved the 3.9 billion euros ($5.3 billion) of state loans needed by Monte Paschi to shore up its capital.

The BoI says it did everything in its powers to oversee Monte Paschi, including forcing it to raise new capital and applying behind the scenes pressure to force out its executives, who left last year.

But the BoI has been under fire for not acting faster to sanction those managers and make its doubts public even though its inspectors had spotted the derivatives contracts at the centre of the scandal back in mid-2010..

Monte Paschi’s woes stem back to its 2007 acquisition of smaller rival Antonveneta for 9 billion euros in cash from Spain’s Santander just a few months after Santander had bought it for 6.6 bln euros.

Senior bankers questioned why the Bank of Italy, then led by Mario Draghi, allowed MPS to undertake the operation, which stretched its finances to the limits. Prosecutors now suspect bribes were paid to facilitate the deal.

The Vatican on Tuesday denied an Italian newspaper report linking its IOR bank to Monte Paschi’s takeover of Antonveneta.

Prosecutors on Monday called Monte Paschi’s former chairman Giuseppe Mussari for questioning for the first time but then accepted his request to have the interrogation postponed to Thursday because some members of his legal team were absent.

The scandal is also a burning political issue, three weeks before Italians vote in a national election on Feb. 24-25, because of the tight links between Monte Paschi and regional politicians - mainly on the left - who dominate the shareholder foundation which controls the 540-year-old bank.

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