JPMorgan Chase & Co. broke disclosure rules when it arranged a 1 billion-euro ($1.3 billion) exchangeable bond for Banca Monte dei Paschi di Siena SpA in 2008, the Bank of Italy told Siena prosecutors.
JPMorgan should have informed the central bank the Italian lender had guaranteed it against losing money on the bond sale, the Bank of Italy said in an April 19 letter to prosecutors filed at a Siena court. The Bank of Italy said it may have withheld approval for the deal had it known about the indemnity.
“No claim was ever made under this indemnity -- which only existed for a matter of days -- including either for the benefit of JPMorgan or any of its employees,” JPMorgan said in a statement. “We believe that JPMorgan and its employees acted correctly at all times. We will defend this action vigorously.”
Monte Paschi, the world’s oldest bank, received a 4.1 billion-euro government bailout earlier this year. The investigation into the fundraising is part of a wider probe by prosecutors into allegations the Siena-based lender hid losses using derivatives, manipulated markets and obstructed regulators probing its takeover of Banca Antonveneta SpA in 2008.
Monte Paschi issued notes that converted into its own shares to boost capital following the Antonveneta purchase. As part of the deal, the bank issued new shares to JPMorgan to cover the potential conversion of the bonds and the central bank authorized JPMorgan to hold about 10 percent of Monte Paschi’s stock, the documents show. If investors failed to pay for the notes after ordering them, Monte Paschi would have compensated the New York-based bank, according to the filing.
JPMorgan should have disclosed the indemnity because it could have reduced the total amount raised for Monte Paschi and the relationship could have affected its financial dealings with the Italian lender, according to the central bank.
Spokeswomen for the Bank of Italy and Monte Paschi declined to comment as did officials at the prosecutors’ office in Siena.