Rome Court to Hold New Hearing on Monte Paschi Rescue

The administrative court for the region of Lazio will hold a new hearing on a challenge by a consumer group to block government plans to lend 3.9 billion euros ($5.3 billion) to Banca Monte dei Paschi di Siena SpA.

The Bank of Italy didn’t submit its board’s opinion on the bank’s rescue, Pietro Valentini, a lawyer for consumer association Codacons, said today by phone, adding the new hearing will be held on Feb. 20. Judge Franco Bianchi will decide on Monday or Tuesday how to get Bank of Italy’s Jan. 26 opinion, according to Valentini.

“According to the Bank of Italy, the document is among those that have to be kept secret and not to be made public,” Valentini said. “They are withdrawing behind a secret that doesn’t exist.”

Earlier this week, Codacons filed a claim to the Rome-based court seeking damages from the central bank and other institutions for not adequately monitoring Monte Paschi’s activities. The Siena, Italy-based bank, the world’s oldest lender, said on Jan. 17 it may be forced to restate earnings after Bloomberg News reported that it used derivatives to obscure losses. Accounting irregularities also led to a criminal investigation targeting former management.

Siena Prosecutors

Today, the Bank of Italy asked Codacons’s request be rejected as “inadmissible and unfounded” and Codacons to pay damages as they started litigation as a pretext, it said in a statement. The Bank of Italy is available to submit its opinion to the judge with respect of protection of sensitive informations, it said in the statement.

In a separate case, prosecutors in Siena are probing Monte Paschi’s past management for alleged market manipulation, false accounting, obstructing regulators and fraud related to structured-financing deals. On Jan. 31, the lender had its credit rating cut by Standard & Poor’s on concern the investigation may hurt results.

The losses “may be higher than initially anticipated” and demonstrate “a risk of management weaknesses,” S&P said, cutting Monte Paschi’s long-term grade to BB from BB+ with negative outlook, which means the company may be downgraded again. Shares fell 5.9 percent in Milan trading yesterday.

The Bank of Italy acted vigilantly in its oversight of the lender, a former senior official of the central bank who was involved in the inspections told Bloomberg News Jan. 30.

The court also asked officials for the lender and market watchdog Consob to testify.

Monte Paschi is seeking state aid to bolster its balance sheet after the bank failed to meet the capital requirements set by the European Banking Authority. The lender is also selling assets and reducing risk and costs in a three-year plan to restore liquidity. Under the government’s rescue plan, Monte Paschi will sell securities, dubbed “Monti bonds” after Prime Minister Mario Monti, to the government with a 9 percent coupon that may rise to as much as 15 percent.

Monte Paschi Chief Executive Officer Fabrizio Viola said on Jan. 28 the bank’s board will complete the bailout request by early February, and the Italian Treasury will conclude the transaction by the end of the month.

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