Prosecutors asked a Milan court to indict Nomura Holdings Inc., Banca Monte dei Paschi di Siena SpA and their former employees for allegedly using a byzantine investment strategy to hide losses at Italy’s third-biggest bank, people with knowledge of the request said.
The filing was submitted Friday, said the people, who asked not to be identified because the matter is private. Three former managers of Monte Paschi and two bankers at the Japanese firm are suspected of falsifying accounts and manipulating markets after an investigation revealed the 2009 deal, dubbed Alexandria, was designed to cloak losses from a previous investment, court documents from earlier this month show.
The investigation revealed Monte Paschi used the transaction to hide more than 300 million euros ($325 million) of losses not reported in its 2009 income statement, that include 88 million euros of implied fees due to Nomura for the transaction. Monte Paschi had to restate its accounts in 2013 to reflect a loss that had allegedly been masked by the Nomura transaction and a similar deal with another lender.
“Monte Paschi welcomes the action of the Milan prosecutors,” the lender said in an e-mailed statement. The bank, which is seeking 1 billion euros in damages from Nomura, “is also evaluating the potential impact from recent evidence uncovered by prosecutors, alleging the criminal wrongdoing of some of Nomura’s senior managers.”
Rob Davies, a spokesman for Nomura in London, didn’t have an immediate comment.
Nomura’s former banker Sadeq Sayeed said he denies all the allegations and a lawyer for Raffaele Ricci, who is still employed by Nomura, said he hadn’t been notified yet.
Lawyers for Giuseppe Mussari and Antonio Vigni didn’t answers calls to their mobile phones. A lawyer for Gian Luca Baldassarri said he hasn’t been informed of the request.
Nomura International, Nomura’s unit in London, and Monte Paschi are both responsible for the alleged crimes committed by their employees because they acted on behalf of the banks, prosecutors wrote in a court document dated April 7. In the case of Nomura, the actions were aggravated by the “substantial” profit the bank made from the deal.
The deal involved an asset swap transaction, a long-term repurchase agreement and a repurchase facility. Besides concealing damage from other investments, the transaction, involving bets on Italian government bonds, itself backfired during Europe’s sovereign debt crisis, when investors shunned the country’s securities.
The European Central Bank requested that Paschi close the transaction by July 26 “unless a proven legal impediment,” because the bank’s exposure to Nomura, including Alexandria, was about 35 percent of its regulatory capital base at the end of 2014, exceeding the 25 percent limit set by regulators.
Monte Paschi was forced to ask the government in 2013 for 4.1 billion euros in fresh aid after seeking funds in 2009. It is now trying to plug a capital gap by raising 3 billion euros from investors.