Monte Paschi Scandal Threatens Frontrunner in Italy Election

Banca Monte dei Paschi di Siena SpA’s revelation of more than 700 million euros ($942 million) in losses from unreported structured-finance deals is roiling the campaign for next month’s parliamentary elections and threatens to hurt frontrunner Pier Luigi Bersani.

Bersani’s Democratic Party, which leads in opinion polls, must take some responsibility for the turmoil at the nation’s third-biggest bank, Prime Minister Mario Monti said today in an interview on Radio Anch’io. The Democratic Party, or PD, runs the local government in Siena, where Monte Paschi is based, and controls the foundation that owns 38 percent of the company.

The spat between Bersani and Monti may be an opportunity for former Prime Minister Silvio Berlusconi, whose group is second in the polls. Monti, who approved a 3.9 billion-euro bailout for the bank last year, may suffer with voters, while most of the blame will probably go to Bersani, said Maurizio Pessato, head of polling firm SWG Institute.

“I think the PD will suffer the consequences,” Pessato said in an interview today. “I think it’s going to create some problems. We’ll just have to see of what dimensions.”

Bersani leads a coalition of parties with 34.1 percent support, according to an SWG poll conducted Jan. 22-23. That compares with 26.6 percent support for Berlusconi’s group of parties and 12.8 percent for Monti’s coalition.

Monte Paschi shareholders today approved two capital increases, paving the way for the government loans, a week after Bloomberg News revealed the bank used derivatives to mask losses. The Bank of Italy said Jan. 23 that the bank hid details of the transactions from the regulator.

PD Influence

“The Democratic Party has a role here, it has always had a lot of influence on the bank through the foundation,” said Monti said on Anch’io. “The problem in the case of Monte Paschi and other cases in Italy and in other countries has a lot to do with the ugly ties between the banks and politics.”

The influence wielded at Monte Paschi by Siena’s city and provincial governments is greater than that of any other single local administration at any of Italy’s other major banks. The biggest shareholder of UniCredit SpA (UCG), the largest bank, is non- Italian. At No. 2 Intesa Sanpaolo SpA (ISP), the foundations that are among the company’s five biggest shareholders report to different local governments across the north of Italy.

Monti said today that Finance Minister Vittorio Grilli will testify in Parliament on the Monte Paschi situation and the government’s plan to aid the bank. Grilli will appear on Jan. 29.

To contact the reporter on this story: Andrew Frye in Milan at afrye@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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