Bundesbank Said to Rebuff Italian Bid to Freeze Nomura Funds

The Bundesbank rebuffed an attempt by Italian prosecutors to freeze assets held by Nomura Holdings Inc. because it hasn’t received a request valid under German law, said a person with knowledge of the decision.

The Bank of Italy has yet to present such a document on behalf of prosecutors probing how Banca Monte dei Paschi di Siena SpA used derivatives to hide losses, said the person, who asked not to be identified because the decision hasn’t been made public yet.

Officials at the Bank of Italy and the Bundesbank didn’t have any immediate comment on the move. A spokesman for Nomura in London declined to comment on the asset freeze.

Italian prosecutors allege Nomura colluded with Monte Paschi’s former managers to devise one of two derivatives in 2008 and 2009 that hid total losses of as much as 557 million euros ($729 million). Magistrates are seeking to seize as much as 1.9 billion euros of margin pledged by Monte Paschi to Nomura as part of the derivative and deposited in Germany.

The extra yield investors demand to hold Nomura’s 1.25 billion euros of 5.125 percent bonds due 2014 over government debt of a similar maturity fell 10.5 basis points to 132 basis points today, according to Bloomberg pricing data.

The prosecutors are also targeting Nomura accounts at Citigroup Inc. and Bank of America Corp. in the U.K., according to the April 15 asset seizure decree, as well as deposits at other banks that operate through Target2, Europe’s cross-border payment system, the document shows.

Bond Wager

As part of the transaction arranged by Nomura and dubbed Alexandria, Monte Paschi bought Italian government bonds using a loan from the Japanese bank. It swapped the fixed-rate interest payments on the bonds with a floating rate and guaranteed the credit risk on the bonds, effectively making a bet on the future value of Italian government bonds. As those securities tumbled during Europe’s fiscal crisis, Monte Paschi was forced to post more margin.

In addition to the collateral, magistrates are trying to seize Nomura’s alleged profit on the transactions of about 88 million euros. The magistrates’ order to seize assets must be ratified by a judge in Siena within 10 days of issue.

Nomura, which isn’t under investigation itself, said April 16 it will “vigorously” contest any suggestion of wrongdoing in the case.