Paschi Gets Investor Backing to Sue Former Managers Over Swaps

Banca Monte dei Paschi di Siena SpA won investor approval to sue former managers over derivatives that hid more than 700 million euros ($916 million) of losses and are at the center of a fraud probe by prosecutors.

Chief Executive Officer Fabrizio Viola told investors at the bank’s annual general meeting in Siena today that the swaps are now fully reflected in the bank’s accounts and “there are no more losses that aren’t booked correctly.” He declined to disclose more about the swaps, citing the criminal probe.

Monte Paschi, the world’s oldest bank, filed a suit against former General Manager Antonio Vigni and Chairman Giuseppe Mussari in Florence on March 1, alleging they used the swaps to hide losses.

The derivatives backfired because they included a money-losing bet by Monte Paschi on Italian government bonds. The lender has pledged about 2.8 billion euros as additional margin on the transactions, according to an April 24 company filing.

The lender is also seeking 1.2 billion euros in damages from Deutsche Bank AG and Nomura Holdings Inc., claiming the two colluded with the former managers to devise the derivatives.

The derivatives “should never have been put together,” Monte Paschi said in a report to shareholders released on March 29. Nomura and Deutsche Bank “were perfectly aware of the context, the illicit objectives” of Monte Paschi’s former executives, the company said in the report. A lawyer for Mussari declined to comment. Vigni’s lawyer didn’t immediately return calls to his mobile telephone.

An Italian judge rejected on April 26 a request by prosecutors to seize as much as 1.95 billion euros of assets linked to the derivatives held by Nomura.

Prosecutors are now returning assets seized from the Japanese lender after a judge rejected their key allegations of usury and fraud, a court filing shows.

There was no fraud because Monte Paschi’s senior managers were aware of the transactions and their implications, Judge Ugo Bellini wrote. Prosecutors can appeal the decision within 10 days at the Siena court.

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