Monte Paschi Ex-Chairman Mussari Convicted in Siena Case

Three former top executives of Italy’s Banca Monte dei Paschi di Siena SpA, including the ex-chairman, were convicted of obstructing regulators and misleading authorities on the bailed-out bank’s finances.

Judges in the bank’s hometown of Siena ordered former Chairman Giuseppe Mussari, ex-General Manager Antonio Vigni and former finance chief Gianluca Baldassarri to serve jail sentences of three years and six months. The convictions in the year-long trial are the first for failings that nearly wiped out the world’s oldest bank and cost taxpayers billions of euros.

The three men were accused of obstructing regulators by hiding the nature of a 2009 trade with Japan’s Nomura Holdings Inc. Regulators say the deal was designed to cloak losses from an earlier investment. Monte Paschi restated its accounts in February 2013 to reflect a loss of about 300 million euros ($376 million) that had been masked by the Nomura transaction.

Lawyers for the three defendants said their clients will appeal the decision. In Italy, the sentences aren’t definitive until appeals are exhausted. “We are surprised and we will appeal,” Fabio Pisillo, an attorney for Mussari, said after the verdict was read by Judge Leonardo Grassi.

Bank Safe

Prosecutors pointed to a document discovered in a bank safe in 2012 and known in the industry as a mandate agreement. It linked various steps in the structured deal -- an asset swap transaction, a long-term repurchase agreement and a repurchase facility -- casting doubt on the managers’ claims that the ultimate goal was to hedge losses.

“The allegation of obstructing regulators in its severest form has been confirmed,” Siena Prosecutor Aldo Natalini said.

Besides concealing damage from other investments, the deal, involving bets on Italian government bonds, itself backfired during Europe’s sovereign debt crisis, when investors shunned the country’s securities. Monte Paschi was forced to ask the government last year for 4.1 billion euros in fresh aid after seeking funds in 2009.

Investigating Deal

Prosecutors had sought a sentence of seven years for Mussari and six years each for Vigni and Baldassarri, arguing that their actions brought the bank to the brink of bankruptcy.

Milan prosecutors are investigating the deal with Nomura as well as a similar transaction with Deutsche Bank AG. The banks have denied wrongdoing.

Monte Paschi’s missteps began with its November 2007 agreement to buy Padua-based Banca Antonveneta SpA. The Antonveneta purchase left the lender short of capital when losses mounted during the financial crisis.

The use of derivatives to cover losses ultimately added to the strain. The lender posted its ninth straight quarterly loss in the second three months of the year, even after raising 5 billion euros from investors in June.

Monte Paschi flunked the European Central Bank’s review of the region’s lenders with a capital gap of 2.1 billion euros -- the worst result of 130 lenders tested. The bank has hired UBS AG and Citigroup Inc. to explore options.

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