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Italian PM Under Fire; Italy's 3rd Largest Bank Hid Derivative Losses: ECB Says "Matter

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Published : January 26th, 2013
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Category : Crisis Watch

When Mario Draghi (now ECB President), had oversight of the Italian bank system as Bank of Italy Governor, the Italian bank Monte dei Paschi di Siena (Italy's third largest bank) hid information on the derivatives transactions between 2006 and 2009.

This information is just now out, and shares of the bank have plunged 22% in a few days. Mario Draghi ought to be under fire, but he says it's a "Matter for the Italian Authorities".

The Mish translation is "It's a Matter for the Italian Authorities, to Sweep Under the Rug".

With that backdrop, let's take a look at the other Super-Mario (Mario Monti) who is Under Fire Over bank Crisis.

Mario Monti, Italy’s prime minister, was forced to offer to recall parliament on Thursday amid questions about his government’s handling of the financial crisis at Monte dei Paschi di Siena and the role of the central bank.

Shares in Italy’s third-largest bank by assets, which has requested a second state bailout in four years, have fallen more than 22 per cent in the past few days since revelations five days ago of derivatives transactions that may force the 500-year-old bank to restate hundreds of millions of euros of losses.

Supervision of the struggling institution by the Bank of Italy while Mario Draghi, European Central Bank president, was governor has come under attack as an increasingly fierce political outcry erupts in the run-up to national elections next month.

Among the most vocal criticisms of the central bank, which traditionally has oversight of the Italian banking system, was Mr Draghi’s long-time rival Giulio Tremonti, the former finance minister who is again running for office on February 25 for the centre-right.

In a sign of the severity of the situation, Giorgio Napolitano, Italy’s head of state, made a rare entry into the financial arena. “If the situation is serious we are right to be concerned but I have full confidence in the operations of the Bank of Italy,” he told reporters.

In a statement released late on Wednesday, the central bank said Monte dei Paschi had “hidden” information on the derivatives transactions struck between 2006 and 2009, a period during which Mr Draghi was governor.

The Bank of Italy said the “true nature” of some of the deals emerged only recently, “following the discovery of documents kept hidden from the supervisory authority and brought to light by the new management of MPS.”

The ECB told the Financial Times that it was a matter for the Italian authorities and declined to comment.

Italy’s centre-right party, led by Silvio Berlusconi, has seized on the issue to attack its centre-left opponents, who have had long institutional ties with MPS. “Monte dei Paschi is close to collapse,” commented Angelino Alfano, secretary of the People of Liberty. “This is an example of how the left would govern the country.”

Il Giornale, a Milan daily owned by the Berlusconi family, ran banner headlines saying the more than €4bn paid by Italians in a widely hated property tax imposed by Mr Monti was in effect going to prop up a failed bank.

Analysts remain concerned that the derivative losses, which are expected to push the bank to a €2bn annual loss for 2012, may increase the risk of the bank being partially nationalised as it will force the state to take an equity stake because the bank will not be able to repay its bail out bonds.
Sweeping Efforts Underway

Note the curious statement by Giorgio Napolitano, Italy’s head of state (a largely ceremonial post): “If the situation is serious we are right to be concerned but I have full confidence in the operations of the Bank of Italy.”

IF the situation is serious? Is there a question here?

I think not. And I wonder what Mario Draghi actually knew. Efforts are probably underway to determine if Draghi actually said anything about this in writing.

Meanwhile, there is a good chance Italy's third largest bank may be nationalized, and an even larger chance this will affect national elections coming up in February.

However, Please don't worry. Apparently it's not serious.

Mike "Mish" Shedlock
Data and Statistics for these countries : Italy | All
Gold and Silver Prices for these countries : Italy | All
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Mish 13 abonnés
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. He writes a global economics blog which has commentary 5-7 times a week. He also writes for the Daily Reckoning, Whiskey & Gunpowder, and has over 80 magazine and book cover credits. Visit
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