Monte Paschi Sues Nomura, Deutsche Bank Over Derivative Bets

Banca Monte dei Paschi di Siena SpA, which yesterday received a 4.1 billion-euro ($5.3 billion) government bailout, sued Deutsche Bank AG and Nomura Holdings Inc. over two derivatives that soured.

Monti Paschi filed separate suits in Florence seeking damages over two contracts from 2008 and 2009 dubbed Santorini and Alexandria, the Siena, Italy-based lender said in a statement today. The bank also sued former executives Antonio Vigni and Giuseppe Mussari for colluding with the banks in the transactions. The lender didn’t specify how much it’s seeking.

Kathryn Hanes, a spokeswoman for Deutsche Bank in London, and Rob Davies, a spokesman for Nomura, declined to comment. Lawyers for Vigni and Mussari didn’t return calls.

Monte Paschi, the world’s oldest bank, is being probed by regulators and prosecutors over allegations the lender used the derivatives to hide losses, adding to the cost of its rescue. In case of the Santorini trade, never fully disclosed to investors, the bank made a money-losing bet on the country’s government bonds, Bloomberg News reported on Jan. 17.

Prosecutors are probing ex-executives for alleged market manipulation, false accounting and obstruction of regulatory activity during the 2007 takeover of Banca Antonveneta SpA as well as for fraud linked to derivatives, according to people with knowledge of the situation who asked not to be identified.

Shares Fall

Monte Paschi fell 2.3 percent to 20.62 euro cents in Milan trading, valuing the bank at 2.4 billion euros. Funds including Egerton Capital Ltd. and Marshall Wace LLP had short positions on the stock as of yesterday, a regulatory filing showed today. Short-sellers sell borrowed shares with plans to buy them back later at a lower price for a profit.

Chief Executive Officer Fabrizio Viola and Chairman Alessandro Profumo are seeking to restore investors’ confidence and revive profitability after the bailout. The lender has said the two trades masked earlier losses and the fair value of a third trade, Nota Italia, wasn’t reflected accurately during the life of the deal, erasing 730 million euros of assets in 2012.

The Alexandria and Santorini transactions are losing money for Monte Paschi after the bets soured, adding to the damages sought, the bank said today. The Italian lender said it paid 139 million euros to restructure Nota Italia on Jan. 23, reducing its exposure to potential losses on Italian government bonds.