Italian Scandal Widens As Italy's Third Largest Bank Set To Get Third Bailout In 3 Years; Draghi, Monti Implicated

Tyler Durden's picture

While little has been said in the mainstream western press about the ongoing fiasco surrounding Siena's Banca Monte dei Pasci, Italy's third largest bank and the world's oldest which may get its third bailout in three years - or even be nationalized - as soon as today, for fears that it may break the thin veneer of "recovery" in the European financial system, the situation on the ground in Italy is getting more serious by the minute, and will have implications on both next month's general election, on Mario Monti, on Silvio Berlusconi, on frontrunner for the Prime Minister post Pier Luigi Bersani, and reach as far up as the head of the ECB - Mario Draghi.

Several hours ago, on Saturday morning, the four-member board of the Bank of Italy - this time without its prior president Mario Draghi - met to consider the position of scandal-hit bank Monte dei Paschi di Siena and decide whether to authorize its request for 3.9 billion euros ($5.3 billion) of state loans.

As we reported previously, it has emerged over the past week that due to previously undisclosed derivative contracts first exposed by Bloomberg, the Siena bank has hid as much as $1 billion in losses. However as was explained in "Will The Super Goldman Mario Brothers Succeed In Covering Up The Latest Italian Bailout Scandal", this discovery has far greater implications for both the bank's future viability, as well as the implied credibility of both the Bank of Italy, and especially the man who headed it for five years before becoming head of the ECB (where he now demands the same supervisory authority over all European banks that he had in Italy, only to supposedly let countless derivative fiascos slip through his fingers).

As Zero Hedge first connected the dots, it is not so much a question of why BMPS engaged in a variety of derivative deals, of which only three have emerged so far and likely has many more on the books, but how or rather why, the then-Draghi led Bank of Italy allowed this to happen not once, not twice, but at least three times.

What the ultimate purpose of these deals was is still unclear and will likely become apparent eventually, however it will likely require the former Chairman of the bank, Giuseppe Mussari, who served as Chair from 2006 until April 2012, and who officially quit his post as Italy's top banking lobbyist after today's revelations, to testify. One person whom he may testify against is none other than current ECB head Mario Draghi, who just happened to be the head of the Bank of Italy from 2006 to 2011, or the entire period when Monte Paschi was engaging in what increasingly appears to have been fraudulent activity.

The next day, Retuers released "Draghi under fire over Monte Paschi derivatives scandal" continuing where we left off:

European Central Bank President Mario Draghi is facing criticism over a scandal involving loss-making derivatives trades made by troubled Italian lender Monte dei Paschi di Siena while he was Italy's central bank governor.


Former Economy Minister Giulio Tremonti said in a tweet that it was "stupefying" that in his role as supervisor of Italy's banking system Draghi had failed to discover or prevent the trades, which took place between 2006 and 2009.


An ECB spokeswoman declined to comment on the matter, saying that it was "the responsibility of national authorities."


Current Economy Minister Vittorio Grilli avoided mentioning Draghi directly but stressed that it was not the government but the central bank that was responsible for bank supervision.


"It wasn't us that did the controlling," he told reporters. "On the checks, all I will say is that it is the responsibility of the Bank of Italy."

Draghi saw no evil, smelled no evil, and certainly heard no evil:

On Wednesday the central bank tried to deflect any criticism, saying the nature of the trades had been "kept hidden" and were only recently divulged by new management appointed last year to turn the bank around.


Draghi, who has won wide plaudits as ECB president, left the Bank of Italy in late 2011 after a five-year stint as governor.


During this time he was also president of the Financial Stability Board, an international body charged with improving financial supervision and regulation.


The deals under scrutiny are the so-called "Alexandria" trade with Japanese bank Nomura, the "Santorini" trade with Deutsche Bank and a derivative called "Nota Italia", with an unspecified bank.


One of the roots of its problems - the 2007 acquisition of smaller rival Antonveneta for a whopping 9 billion euros in cash just months before the beginning of the financial crisis - was also done under Draghi's watch.


"One has to wonder what the Bank of Italy was doing given all the visits they've paid to Monte dei Paschi in recent months," said a source close to the situation.


"If what they came here to look at was only the information publicly available in the bank's financial statements, they could have done that from Rome."

If only Mario Draghi could threaten to print countless lira, as he has effectively done as head of the ECB, to contain, for now, the European banking implosion, all would be well, however he can't, and for now at least the problem is contained to Italy.

Of course, the Bank of Italy could punt, and effectively push the problem to the ECB's plate, but the second that happens the fragile alliance between surreality and outright idiocy that has gripped European pundits and "analysts", who claim Europe is fixed, when in reality nobody knows what the banks have on their balance sheets, or how many more trillions in liquidity they collectively need before their capitalization is fixed (that is a trick statement, of course, because excess liquidity will never, ever help with capitalization issues, as much as the ECB pretends otherwise) will crash and burn.

The problem for the ECB in coming to an indirect cash bailout of BMPS would be its own historical record from as recently as a month ago, when the second bailout of Monte Paschi was being finalized. From Reuters:

The terms of a state bailout scheme for Banca Monte dei Paschi di Siena, Italy's third biggest lender, could pose more challenges to the bank's performance, the European Central Bank said. The ECB, which will supervise euro zone's lenders from March 2014, also said on Thursday it was told by the Italian government too late into the process about the details of the rescue.


Monte dei Paschi was forced to request state aid after failing to meet tougher capital requirements set by the European Banking Authority.


the ECB said issuing more bonds to pay for the coupon would add to the bank's debt burden in an already difficult economic environment.


"This could pose further challenges to the bank's performance in the near term and impair its capacity to redeem (the bonds) in a timely manner," the ECB said in an opinion posted on its website. It said it would be preferable for the bank to issue new shares to the treasury to help pay interest - an option that is possible under the scheme but is not favored by the treasury or by the bank.

So the Italian head of the ECB was told by the Italian government headed by Monti, both former workers of Goldman Sachs about the terms of the second Monte Paschi bailout, "too late"? And upon hearing of said bailout, it was the ECB's determination that a more feasible bailout structure would be to issue equity - equity from an entity that one short month later would need another bailout and possibly nationalization (hint: equity value = zero)?

One couldn't make this up!

But if it was only a question of implicating Draghi, we are confident that the BMPS scandal would promptly go away after the Frankfurt-based central bank slipped a few billion €s under the table to the current head of the BOI - Ignazio Visco - delaying the eruption of the problem for another year. However, what is unique this time is that the BMPS fallout has far broader political implications due to BMPS' historical links to the centre-left, and the fact that Bersani's Democratic Party runs the local government in Siena where Monte Paschi is based, and controls the banking foundation that is the lender's biggest shareholder.

As a reminder Bersani is the frontrunner to replace Mario Monti as Italian PM. Which means the immediate involvement of the entire media empire apparatus of who else but...

Yup - Silvio, who is also running in next month's election, is now on the case, and where Silvio goes, the public is sure to follow.

As Bloomberg reports:

Berlusconi and his allies have slammed Monti over the bailout by linking the aid to an unpopular real estate levy on first homes, known as the IMU, which raised from Italian taxpayers an amount similar to the emergency loans designated for Monte Paschi.


We paid the IMU to Monti so that he could save the bank” of the Democratic Party, read yesterday’s front-page headline in newspaper Il Giornale, owned by Berlusconi’s brother Paolo. “What has been said about interventions and comparisons between the amount used for aid and the revenue from taxes is a complete fantasy,” Monti said.


Monti said today in an Italian radio interview that the election campaign shouldn’t affect the bailout timing because it’s being carried out under European rules. Still, he acknowledged that the Monte Paschi case “has a lot to do with the ugly beast of mixing banks and politics.”

The irony of course, is that the first bailout that Monte Paschi received was when Berlusconi was still PM:

Monte Paschi, the world’s oldest bank, received a first bailout from Berlusconi’s government in 2009, and has now added 500 million euros to its aid request to cover potential losses linked to the structured-finance deals, bringing the total cost of the rescue to 3.9 billion euros

However, to distract from his involvement, Silvio will be more than happy to throw none other than Draghi under the bus for having been the BOI's head at the time, and after all - it was Draghi's decision to bail out BMPS, not the Prime Minister's.

Ah, the plot thickens:

“We want to know the truth, we’re tired of being taken advantage of,” said shareholder Gianni Acciughi, 60, who took early retirement from Monte Paschi in 2009. “How is possible that nobody knew anything about this? If that’s the case, then legal action has to be taken immediately against those responsible.”


Members of the Northern League party, a partner in Berlusconi’s previous government, demonstrated at today’s investor meeting. They distributed leaflets criticizing Mussari’s management and his ties to the Democratic Party.

And for those who still believe this is a non-issue, Beppe Grillo, the leader of the 5 Star Movement running in the campaign, and a very popular grass roots candidate among voters disenchanted by both parties, "said the bank’s case will turn into a scandal worse than the collapse of food company Parmalat SpA in 2003."

Needless to say the scramble by everyone to cover their backsides ahead of what is sure to be an epic media, publicity and political scandal has started:

[Bank of Italy head] Visco attended the World Economic Forum in Davos on Friday where he gave a spate of interviews to try to deflect accusations that the BOI had not done its job properly.


"It is wrong to insinuate that there was a lack of supervision by the Bank of Italy," he told CNBC television, adding that his institution had nothing to hide and would cooperate with prosecutors probing the Tuscan lender.


Visco told reporters on Friday that "there is no question that the bank is stable."

Actually, there is:

Outgoing Prime Minister Mario Monti said late on Friday he considered it a "remote hypothesis" that the bank would end up needing to be nationalized.

So... there is "a question"?

It only gets better:

In Davos, Visco sidestepped questions about whether Draghi knew about the derivatives trades, which were conducted between 2006 and 2009 and involved Japanese bank Nomura and Deutsche Bank.


Internal auditors at Monte Paschi already detected anomalies at the bank's finance department responsible for derivative operations three years ago, daily Il Sole 24 Ore reported on Saturday, quoting parts of the audit dated November 26, 2009.


However, the outcome of the audit was "partially favorable" for the Siena-based bank, contrasting with "partially unfavorable" rating given by Bank of Italy inspectors led by Vincenzo Cantarella at the end of an inspection from May-August 2010.


Press reports on Saturday suggest the scandal around Monte Paschi is widening.

Yes it is. And it is "widening" at a time when former Bundesbank head Weber said in Davos that everyone in Europe has succeeded in sticking their heads in the sand:

Central banks can buy time, but they cannot fix issues long-term,” former Bundesbank President Axel Weber, now chairman of UBS AG, said in the Swiss ski resort yesterday. “There’s a perception that they are the only game in town.”

This coming from the former head of the one European central bank which several days ago requested that all of its Paris gold, and much of its New York-based gold, be repatriated.

And when the next leg of the financial crisis flares up, which it will as nothing at all has been fixed, unless one considers stuffing all outstanding issues under the rug "fixing", nobody will have been able to foresee any of it. As always.

And it will be, naturally, "someone else's fault."

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LongSoupLine's picture

Ha...also known as the "Russian speed bump" in the 80's.

Motorhead's picture

Now, now, the Fulda Gap was in Hesse, not Bavaria.

LongSoupLine's picture

Indeed it was, and the Fulda gap was one section of the speed bump. Lest we forget the southern routes.

Never One Roach's picture

Since 20% of every bailout is embezzeld, I'm sure they welcome it.

tip e. canoe's picture

and therein lies the real story...the almighty skim.

magpie's picture

'unspecified bank' lol

Bam_Man's picture

L'amo quando lei parla Italiano!

TNTARG's picture

Pensare che é ora di cambiare le scarpe! Non gli sembra?

Boozer's picture

Tutti i gusti son gusti.

TNTARG's picture

Monti dei Paschi di Siena, Lehman o qualsiasi altra, non fa nessuna differenza! Sono tutti ladri, in ogni banca europea dell'Eurozona, alla BCE e i governi che sostengono quest'architettura per il saccheggio.

Meaning: There's no difference. All the Eurozone's banks are run by thieves; the BCE is mafia as well as the governments that support that ugly plundering architecture.

MiltonFriedmansNightmare's picture

The first thing we do is let's kill all the bankers...then put a permanent end to the failed concept of fractional banking (faIled for the taxpayers, not so much for the banksters eh)

davidsmith's picture

in reality nobody knows what the banks have on their balance sheets



The bad debt amounts to about $6 quadrillion worldwide.

Conman's picture

Japan laughs at that paltry amount. They also suggest that you "don't worry".

americanspirit's picture

And of course if you're old or sick, hurry up and die.

Pure Evil's picture

Maybe we can help by dropping a few more nukes on selected cities. Just move all the old farts into select cities and poof.

Problem-mo solved.

ivana's picture

think that ordinary person cannot even imagine what kind of true mafia banksters are

bugs_'s picture


should be a very charmed transaction.

Unfortunately for these banks, their central bank props, and their government friends they are broke, bankrupt, SPEZZATO!

and there is NO fix, the bailouts are vapor which is why they do not last.

Atomizer's picture

Wearing fresnel prism glasses can aid in focusing on the true debt restructuring program value.



mr_nice's picture

you know what else Draghi had his hands in? LTCM. Bank of Italy invested around 200 mln with them when he was COO at the italian treasury..

optimator's picture

Long Term Capito Management, the  whiz kids, nothing could go wrong........and the one chance in million it could, and did, they were bailed of course.

Joebloinvestor's picture

Any comment from the Mafia?

Miles Kendig's picture

Look to anything being said by the Italian banking establishment for your answer

Miles Kendig's picture

“We want to know the truth, we’re tired of being taken advantage of,” said shareholder Gianni Acciughi, 60, who took early retirement from Monte Paschi in 2009. “How is possible that nobody knew anything about this? If that’s the case, then legal action has to be taken immediately against those responsible.”

Gianni Acciughi - Poor clueless fuckovered while sleepwalking through life gerbervore.  Keep up this nonsense Gianni and some European court will issue a warrant for your arrest for making a terrorist demand whose only goal can be undermining EU solidarity.  If not then keep a sharp lookout for an Obamadrone.  You just might be targeted for termination as a threat to global financial stability .. er .. world peace

Time to pass the plate a third time there Mr. Monti

booboo's picture

This short video will explain the complexity of modern day banking

optimator's picture

Monti is really a nice guy, he's being wrongly trashed.   Just this evening he and his friend DSK are taking my nice young wife out for a fancy dinner........On second thougt, maybe I better talk to my wife now.

q99x2's picture

Bring back the Bunga Bunga already. How much room is left under the bus? I know a few more that need tickets.

q99x2's picture

The best way to rob a bank is to own one. W. Black.

booboo's picture

Slicker then a greased eel in a barrel of hog fat.

_ConanTheLibertarian_'s picture

Hey guys, noticed the difference between Flavio on the front page and his picture in this article?

Look at his eyes on the front page. LOL.

suckerfishzilla's picture

A 23 million dollar fine would be commensurate for the offense if the two are ever prosecuted.  Take away their birthday for a year.  That should teach them a lesson.

Conman's picture

"Take away their birthday for ever."

There fixed it for you.

Yen Cross's picture

 The [Pep Boyz], Berlusconi, Draghi, Monti, can't seem to stay out of the news... worthless asshats.

Atomizer's picture



WHAT DIFFERENCE DOES IT MAKE We stole from the peasants savings & we’ll do it again…

TNTARG's picture

It seems that whas precisely Monti dei Paschi di Siena the bank who invented the derivatives under the form of tulips' insurance, 375 years ago. In 1623 a certain kind of tulip was very precious and everybody wanted it. At the time a Messer Cucinotti from Monte dei Paschi di Siena invented the "wind's commerce", meaning: he made the bank print insurance certificates for the tulips' bulbs and started to grant those certificates with a subsidiary in London that traded them charging a profit and so on.  Thing is that each certificate reached the ammount of 186 bonholders which they bought at different prices (from 8 to 75 fives the original ammount). The BMPS gave "investors" loans to purchase certificates, of course, granted by real states they owned. In 1635 the ammount of speculative finance reached 15 times the real wealth of the whole European royalty. In 1637 some aristocrats who needed cash started to sell and on february 9 had place the first gigantic financial catastrophe  in History.

It seems they never gave up fu'g people around.


PontifexMaximus's picture

reading your article again, tyler, perfect reseach job done, you really must have inside knowledge about this matter, veramente, tanto di capello e profondamente al altezza di tutto ciò. i dont't know, whether visco would be happy to dispose over it.
















Skin666's picture

Zero Hedge Bitchez!


Thanks once again Tylers x

Dollar Bill Hiccup's picture

The former Head of Monte P. may slip in the shower. Or shoot himself in the back of the head. Etc.

Then what ?

mendigo's picture

Foremost, I hope nobodys going to set themselves on fire over this - it only provides entertainment for the bankers and you tube hits.

Separately, what will it take to get the public to take notice and question this - I don't think strong words from the big breasted bimbos on financial networks is going to get the job done. The Japanese never wokeup to what was and is being done to them - which is only fitting as they treat thier women and children so they were treated.

Are our elected really that in the pocket of the bankers that they cannot be bothered to take a serious look at what is going on.

Obama is clearly ownly a Chicago political hack.

Somehow I feel something or someone needs to tip the playing field just a little bit. The thing is they don't really accept that what they are doing is wrong - similar to the mistreatment of women in India. It would only take a few harsh sentences to get thier attention I think threat of capital punishment is not out of order. More likely they will get tough on the poor first.

Herdee's picture

There's lots of illegal money that'll always keep Italy afloat.Well at least they thought so.Then came along these little items called "derivatives" and we all know what old Warren Buffet has to say about them.Not even the billions made from supplying dope will save Italy and the United States Governments from overwhelming debt.

hairball48's picture

"And it will be, naturally, "someone else's fault."

Gotta be Bush's fault then...right? :)

Downtoolong's picture

Draghi saw no evil, smelled no evil, and certainly heard no evil:

But, even though I've lost all my senses, I'm still the best person to lead you and the rest of Europe out of this mess from the top down because..........?

It's a Goldman thing.

Remington IV's picture

amazingly enough , I remember going to vist Monte dei Pasci  to sell them our services , and couldnt ... must've been too much on the up and up for those guidos

Ar-Pharazôn's picture

second time that i have to correct. i hope this time the author will read my comment.