Italy’s finance police searched Nomura Holdings Inc. offices in Milan as prosecutors stepped up their investigation into whether Banca Monte dei Paschi di Siena SpA used derivative transactions to hide losses from regulators.
Nomura, Japan’s largest brokerage, isn’t being investigated, a police official said, requesting anonymity in line with policy. Deutsche Bank AG on March 22 voluntarily submitted documents to Siena, Italy prosecutors that relate to its own derivative deal with Monte Paschi, according to two people with direct knowledge of the case.
Monte Paschi’s former managers, including ex-finance chief Gianluca Baldassarri, are being investigated for obstructing regulators and colluding to hide a document that showed how the world’s oldest lender entered into a derivative with Nomura in 2009 to conceal losses, a court filing shows. Prosecutors in Siena are also probing former managers for alleged false bookkeeping, market manipulation and criminal association.
A Nomura spokesman in London said the bank will assist in the inquiry. A Deutsche Bank official declined to comment.
Siena prosecutors are due to meet counterparts for Switzerland’s canton of Ticino tomorrow as they also extend a related probe of money laundering, according to Saverio Snider, a spokesman for Ticino prosecutor Natalia Ferrara Micocci. He said both Switzerland and Italy requested help from each other on the investigation.
The transaction at the center of the allegations against Baldassarri, who was arrested last month, is a deal arranged by Nomura dubbed Alexandria. As part of that deal, Monte Paschi bought Italian government bonds with a loan from the Tokyo-based bank, swapping the fixed-rate interest payments on the bonds with a floating rate and guaranteeing the credit risk on the bonds. In effect, the Italian bank issued credit-default swaps on the debt, according court filings.
The former head of finance allegedly hid a so-called mandate agreement on the trade dated July 31, 2009, showing the intention was to conceal losses, court filings show. The mandate agreement was found on Oct. 10 last year.
Baldassarri’s repatriation of “substantial” sums in 2009 and 2010 led to an investigation of Monte Paschi’s finance department and an inquiry into the bank’s use of complex financial transactions that had no immediate or prospective profit, court documents show.
The money laundering probe may be broadened to include other individuals, said a person with knowledge of the matter who asked not to be identified because the investigation is private. Alleged wrongdoing by Monte Paschi’s former managers includes the purchase of Banca Antonveneta SpA in 2007.
Siena prosecutors declined to comment. Baldassarri’s lawyer, Filippo Dinacci, said he’s not aware of the Siena prosecutors’ meeting with Swiss authorities.
In another deal that Monte Paschi used to hide losses, the lender in December 2008 borrowed 1.5 billion euros ($1.9 billion) from Deutsche Bank. Bloomberg News first reported on Deutsche Bank’s so-called Project Santorini in January.
“The transaction was subject to our rigorous internal approval processes and also received the requisite approvals of the client who was independently advised,” Deutsche Bank said in a statement March 13.
Lawyers for Deutsche Bank, which isn’t under investigation, gave prosecutors official documents on the trade, including contracts, said one of the people who asked not to be identified because the matter is private.
Monte Paschi said in February the Nomura and Frankfurt-based Deutsche Bank deals hid losses that wiped out 578.7 million euros of assets in a restatement of 2012 data. The Italian lender on March 1 sued Nomura and former Paschi managers to recover 700 million euros in damages, and it’s seeking 500 million euros from Deutsche Bank and former Paschi bankers in a separate claim.
The same day Nomura filed a claim in London against Banca Monte Paschi seeking confirmation that contracts on 2 billion euros of repurchase agreements with the lender are valid.
Nomura is also seeking confirmation from the court of the validity of the mandate agreement with which Monte Paschi agreed to hire Nomura to restructure Alexandria Capital Plc notes, a filing shows. The contracts on four repos relate to Italian sovereign bonds that mature on Aug. 1, 2039, and Sept. 1, 2040, according to the filing.