Italian Bank Scandal Spreads To Other Banks: Berlusconi Big Winner

Tyler Durden's picture

As we warned last week when the BMPS fraud story broke, this is highly likely to be the canary in the Italian banking system coalmine; and sure enough today, Reuters reports that:


Italian bank stocks (still under short-selling bans) are plunging (and the EUR is dropping) but, as Reuters notes, the winner in this growing debacle is Berlusconi as Italians blame the Democratic Party for the problems at the banks. Most pollsters, however, still think it unlikely that Berlusconi can overtake Bersani with little more than three weeks to go - after being more than 15 points behind in early December. And just as a reminder Mario Draghi was running the Bank of Italy during this era of evasion.


Today in Italian Banks...

and YTD...


Charts: Bloomberg

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bank guy in Brussels's picture



Break-up of the euro

Bring it on, bitchez!

TotalCarp's picture

They investigate banks??? How dare they! Thats unheard of!

In good old US of A the inestigating parties would have been long deemed terrorists and promptly droned.

DeadFred's picture

Why don't they hand the investigations over to Eric Holderini and then there problems would disappear?

Manthong's picture

Next thing Bill Clinton will be named to head a task force to curb the oral sex explosion amongst school aged children. 

No Euros please we're British's picture

I heard it was anal sex in order to preserve female "virginity". How things have changed since I was at school.

Reptil's picture

Break up of the euro? Hardly. They'll now proceed to transfer EVERYTHING to the public account. Then let it collapse and walk away without any losses.

Today SNS Reaal Bank in the Netherlands was nationalised, it was bankrupt, bad real-estate branch acquired from ABN-Amro Bank (which was already nationalised in 2010).

All stocks are now owned by the State of the Netherlands, and the bank has disappeared from the stockmarket.

Frank Elderson of De Nederlandsche Bank (DNB, the central bank) said earlier this week there is no judicial ground in the "Bank Intervention Law" to let the bondholders of the bank or even this real estate portfolio even share in the cost of bailout. Instead, the taxpayers have to do that, and there should be "special bonds" that don't have the guarantee of bailout. This put him on a direct collision course with minister Dijsselbloem who said bondholders must share in the cost.

It was said on "Een Vandaag" radio, this would be the "only way" to prevent small savings accounts from evaporating. There were only 3 persons that managed this multibillion real estate branch.

Oh look who was involved. Goldman Sachs. What a surprise!

Earlier the government refused to seperate investment banks from the "nutsbanks" to seperate normal banking from investment portfolios. Instead they introduced in beforementioned law, that banks that are in a crisis should be easier to split into investment and normal banking activities.

 Now it can be concluded that this was more hollow talk.

Time for a good old revolution, I'd say..

Banksters's picture

Meanwhile in Spain:


(Reuters) - Spanish Prime Minister Mariano Rajoy will speak publicly on Saturday regarding media reports alleging that he and other leaders of the ruling People's Party received payments out of a slush fund fed by private donations.

The collapse of the Spanish govt begins in 3 2 1...


q99x2's picture

Bring back the Bunga Bunga. Gold didn't stay smacked down long either. It's up 20 bucks so far today.

TheGardener's picture

However the old pattern is broken, one just had to look
at the EURUSD crosses and all we had was everyday arbitrage
with euro gold staying ever the same with locks on the downside. Now gold is seriously down in euros too for days on end . Any naive bullish players left in the paper market after at least one bundesbank attache was told their is no actual gold stored in harms way off Wall Street ?

swissaustrian's picture

Thank god Mario Draghi can transfer moar LTROs money to them if needed

Haus-Targaryen's picture

I've missed Bunga Bunga.  Sure he was/is a shithead - but lets be honest - its why everyone loved him.  



Panafrican Funktron Robot's picture

I share your preference for honest vs. dishonest assholes. 

TheGardener's picture

I have Italian friends who voted Berlusconi despite considering themselves "liberal". They also don`t buy that
the Italian business ethics that defy the state by sticking together being blackmailed as "mafia" , they are all in against the criminal government structure. In other countries the enterprising folks get kind of co-opted at some point; not so in Italy, no collaboration as it only
leads to your own defeat. Drives socialist free-for all-types mad, there ain`t no loot to redistribute : MAFIA !

Hence all the socialist ( over there unashamedly not only formerly communist) judges have a go on entrepreneurs like Silvio
and try to nail HIM on the corrupt system he navigated as
if it was a crime to operate in a criminal country in the first place.

Ordinary Italians are just like ordinary US or German TV citizens, they don`t really care.

swissaustrian's picture

EUR/CHF dropping quickly

fonzannoon's picture

We need a wildcard. This is too boring. Israel bombimg Italian banks would wake some people up.

fuu's picture

Everyone expects Israel to do things like that.


Now if Iceland started bombing European banks that would be the start of something interesting.

Whiteshadowmovement's picture

I dunno fonz, i really wouldnt be holding my breath regarding a geopolitical flare up like an israel bombing etc. That sabre rattling has been going on for ever and ever. I remember when I was starting out in 2006, even in that summer everyone was on their toes about there finally being "war with iran"

Its like NK as well, as its all just a big game

fonzannoon's picture

I hear you. I think it is going to take something big to push money back to the USD.

Whiteshadowmovement's picture

I wish they would just change the name of the currency from "Euro" to "fuck yourself shorts"

Catullus's picture

Wider and wider Eurepo goes

williambanzai7's picture

Yes, the dark gaseous clouds have passed...

fonzannoon's picture

Anyone on here ever go to check a quote and type in the wrong symbol, which pulls up some company that you never heard of, and you look at it, and then buy it just for the hell of it?

gamera9's picture

Yes as they are all good even the otc;;BB

youngman's picture

Its FATE I tell you ...FATE

Temporalist's picture

Ever slip and fall and break your tooth but find a penny beside to your bleeding face and say "thith ith my lucky day!"?

fonzannoon's picture

This is going to be a long road trip temporalist, and I am that guy that needs to stop and piss every 2 hours.

fuu's picture

Fark that, I am sure we have a few catheters amongst all the canned hams and silver.

fonzannoon's picture

Look at Kevin step on the gas right now. Wow. He is just showing off for Ben. Kevin you big showoff you!

Whiteshadowmovement's picture

lol, yeah its what you were saying, the 10yrs ready for a short squeeze, the air came out of the euro pop (im a bit surprised because i was waiting for the "good" econ data to strengthen the dollars "fundamentals" but it seems they didnt even bother). And of course a pop for STAWKS- thanks Kev!

Downtoolong's picture

Because, God forbid anyone in banking would break their sacred agreement and fully disclose something without first being subpoenaed.

Sid James's picture

$50 says the clown wins. Again.

Silverhog's picture

We need a Clown death camp.

Volaille de Bresse's picture

2013 is gonna be an interesting year! 

machineh's picture

And just as a reminder Mario Draghi was running the Bank of Italy during this era of evasion.

Oof ... Brussels, we've got a problem.

Particularly when less-corrupt northern Europe again wonders whether they can ever share institutions with the south.

JimBowie1958's picture

Eurpe is its own worst enemy. For the USA its our political whores, and the Banksters manipulate all of it..... for now.

falak pema's picture

very deep logic; its dark in there! 

But I guess you mean Europe is pooped by the Euro and the US is pooped by the FED/TBTF/Congress. Now I see the light at the end of the tunnel.

One thing they both have in common : the private banking trillion, non trickle down  to shareholders but very social friendly, mega debt. And that is a hang over from thirty years gone viral since 2000 days. 

Now I'm back in the dark...for now.

buzzsaw99's picture

Draghi is an untouchable squid maggot. Round up the usual suspects. [/Capt. Renault]

disabledvet's picture

A system wide Italian banking collapses strikes me as a VERY serious situation. Uni-credit is a VERY large lending the ECB prepared to go all and have the euro-zone nationalize? I'm not sure Italy itself is capable of doing such a thing. And again...this is MASSIVELY deflationary. I think the USA will soon have a multitude of its constituent States running LARGE budget surpluses as the "natural gas revolution" spreads throughout the bulk of Upper midwest and north central regions. (Texas has been "first in the nation" in this regard hitting 12 billion on the positive side...with California now suddenly swinging to surplus...i think soon Pennsylvania which could have a MASSIVE surplus...Wisconsin, Ohio, Upstate New York, etc...etc...) why is capital flowing into Europe again? again...not a bear but do think we are in for a correction based on what's going on in the euro zone. If the Italian banking system collapses i'm not sure Italy could even exit the euro-zone. Spain on the other hand...

falak pema's picture

so Spain and Italy are feeling the pain of having their financial "rosy reds" being examined by all and sundry.

"That place, in my bunga bunga book is ONLY for strict private use," laughs Berlu. "These guys don't know how to run a country and hide their secrets like a true Oligarch should. That is the difference between us oligarchs, sons of Caesar, and these no good technocrats who haven't learnt what MAchiavelli taught us : do what you like but never get caught at it!  Ha, I'm still waiting for someone to prove to me  that I was sleeping with minors; apart from my ex-wife who is just jealous that I can still pick up an 18 year old!

My Bunga Bunga play is a game of poker which always end in "poke her" but its behind the curtain. Learn you stupid turds of financial world; you are so open about your debauching and hanky panky you would never be invited to Zeus's table for the first supper; so go eat your last one..."

A page out of Richard Nixon's book, now being paged turned by Lance as well! 

The black swans are lining up. I learnt the difference between abductive logic and deductive logic when I saw swan lake. 

In abductive if you only see white swans you conclude all swans are white; in deductive if you see all swans fly and swim you deduce that the one swan can fly and swim. 

Deductive, Inductive and Abductive Reasoning - TIP Sheet - Butte College

TheGardener's picture

But falak, I don`t get you ! There is only black swans
on the Swan River that leads to the Perth`s Mint ?

NEOSERF's picture

And in other stories...

Police raid prompts IMF’s Lagarde to speak out IMF chief Christine Lagarde denied on Thursday any wrongdoing in the settling of a 2008 fraud case after police stepped up their investigation into the affair, searching the home of her former chief of staff, France Telecom CEO Stéphane Richard. ON THE BLOGS Sarkozy son awarded teaching job... before finishing his own studies
PontifexMaximus's picture

bullish for the EUR and the markets

Dewey Cheatum Howe's picture

Also follow the tributaries off the main river leads to more dead bodies in the derivatives cesspool.

You can add Dresdner bank to this tangle and the spotlight should be shined on all major transactions done at the London desk for MPS as well.


I like this article alot since it pierces back the veil and allows the peons to see how the wizard works behind the curtain.


Insight: Monte dei Paschi harbored bank within a bank US-MONTEPASCHI-DERIVATIVES:Insight: Monte dei Paschi harbored bank within a bank

By Silvia Aloisi and Stefano Bernabei

SIENA, Italy (Reuters) - The secret document at the heart of the Monte dei Paschi banking scandal lay for months in a concealed safe in a 14th century Tuscan palace.

Chief Executive Fabrizio Viola said he learnt about the safe's contents only last October, a full 10 months after he had been called in to sort out Italy's third biggest bank.

The 2009 document revealing derivatives deals that have run up huge losses for Banca Monte dei Paschi came to light in the office of Viola's predecessor at the bank's headquarters in Siena.

"The document was in a safe, moreover in an office that was no longer mine," said Viola. "I don't think that the person who put it there had been trying to hide it. But there is no doubt that the document had not been used in the bank's accounting."

The document found at the 540-year-old bank's head offices - which are appropriately in a restored ancient fortress - was a contract mandating Japanese bank Nomura to carry out deals on behalf of Monte dei Paschi.

It revealed that, unbeknown to the new management under Viola, two derivatives transactions known as "Alexandria" which had looked separate were in fact linked. This meant they should have received different accounting treatment, leading to heavy losses.



This discovery prompted an internal inquiry that has, so far, revealed losses of up to 720 million euros ($977 million).

Monte dei Paschi is the only major Italian bank to have turned to the state for help, and revelations about the deals have also made its 3.9 billion-euro bailout an issue in campaigning for national elections next month.

The center-right party of former prime minister Silvio Berlusconi has been critical although his government, which fell in late 2011, itself gave state support to the bank.

The Bank of Italy is also under fire, with critics accusing it of lax oversight and lack of transparency about suspected financial irregularities at the Tuscan lender.

The safe appeared to have been well hidden as there is no evidence that tax police found it when they combed the Siena offices in May, as part of an inquiry into Monte dei Paschi's 2007 acquisition of smaller lender Antonveneta.

The mandate document was found in an office on the fourth floor of the palazzo which had been used by former chief executive Antonio Vigni and is now occupied by board members.

"Vigni had left the document in the safe, but no-one knew about the existence of this safe," said a source with direct knowledge of the discovery.

Whether the contract was deliberately hidden or simply forgotten, Monte dei Paschi's former top management seems to have had little idea of what traders in the finance department that negotiated such risky deals were doing - despite repeated complaints from internal auditors, according to senior sources with knowledge of the situation and documents seen by Reuters.

Three years before the document was uncovered, Monte dei Paschi's own risk control unit and its audit committee had already expressed serious concerns to Vigni about the way the bank's finance department handled risky trades.

Internal documents obtained by Reuters show an audit of the department in August and September 2009 had uncovered a "systematic overshooting of risk limits" in the management of the group's 24-billion euro proprietary portfolio.

Proprietary trading involves a bank taking trading positions in securities such as stocks or bonds to make profits for itself, rather then trading on behalf of a customer.

Close examination of the documents, which included letters addressed to Vigni outlining the internal auditors' misgivings, suggest that the finance department operated like a bank within a bank, entering into derivative trades and hedging bets that went wrong with little scrutiny from Vigni or then Chairman Giuseppe Mussari.

Senior sources with direct knowledge of the situation have confirmed the picture they portray.


Speaking on condition of anonymity, they said ex-finance department chief Gian Luca Baldassarri and his team were viewed as the real bosses inside the bank, with a weak understanding of markets among the top management allowing them to engage freely in opaque financial deals.

The finance department headed by Baldassarri was made up of about 60 people, including "back office" staff who handle paperwork connected to the deals.

But the people Baldassarri really trusted and worked in close contact with numbered no more than five. The finance department was based in Siena but had a trading desk in London, Europe's main financial centre.

"The risk management unit constantly raised alarm bells," said a senior source with direct knowledge of the situation. "However, these were very powerful people."

A former mid-level bank manager who had dealings with Baldassarri described him as "an affable finance wizard who did not use his status to put on airs and make people feel inferior".

Baldassarri - who worked at the bank between 2001 and 2012 - and another Monte dei Paschi manager in London are referred to as "the five percent gang", according to a judicial document seen by Reuters.

This document contains minutes of a 2008 interrogation conducted by a Milan magistrate of a former Dresdner Bank employee, Antonio Rizzo, as part of a separate Milan inquiry.

The "five percent" label refers to a fixed fee that, according to Rizzo, the duo would ask for themselves for every financial transaction they managed to push through.

The fees were paid to the two managers via a Swiss-based vehicle called Lutifin SA, the tax police - a specialist force that also handles financial investigations in Italy - said in its report, also seen by Reuters.

The former mid-level manager said Monte dei Paschi's top brass didn't grasp what the finance department was doing from its offices overlooking the Renaissance buildings of Siena. "They could do what they wanted because no one really understood what they were doing, neither Mussari nor Vigni," the official said.

Vigni declined to comment for this story while Baldassarri was not available to comment. Mussari, who had to step down as chairman of the Italian banking lobby last week, did not return calls. Monte dei Paschi declined to comment.

Nomura said last week that the derivative trade had been reviewed and approved at the highest level within Monte dei Paschi, including by Mussari. However, the Italian bank said later that its board had not reviewed the deal for approval.


Established in 1472 to lend to "the poor or miserable or needy", Monte dei Paschi was already being investigated by Siena prosecutors over possible bribes linked to its 9 billion-euro cash acquisition of Antonveneta, which stretched its finances to the limit just months before the global financial crisis.

Prosecutors are now also investigating "Alexandria", the complex 2009 structured transaction with Nomura, and two other deals - the 2008 "Santorini" trade with Deutsche Bank and the 2006 "Nota Italia" trade with JP Morgan.

Deutsche has said its deal had been approved by Monte dei Paschi. JP Morgan declined comment.

The documents obtained by Reuters do not refer specifically to the three derivative trades, which are alleged to have been used to conceal losses at Monte dei Paschi.

But the documents show Vigni, who received a four million euro severance payment when he left the bank, failed to implement adequate controls over Baldassarri's department and that warnings about dodgy deals were largely ignored.

Viola, who took over as chief executive of Monte dei Paschi in January 2012, fired Baldassarri shortly after he arrived.

Viola told reporters on Monday he took that decision not because he thought Baldassarri had done something illicit, but because of "performance issues" over the management of the bank's 37-billion euro financial portfolio.

Viola has laid off more than a hundred managers, some of them with close ties to the bank's previous leadership, and has taken action to improve corporate governance.

The bank, known as "Daddy Monte" because of its influence and patronage, has close ties to the Democratic Party (PD). The centre-left PD is leading in opinion polls before the February 24-25 elections, although Berlusconi's PDL has made up some ground since the scandal broke.

The town hall, the province of Siena and the Tuscany region, all run by the PD, name 14 out of the 16 board members at Monte dei Paschi's charitable foundation, which in turn picks half of the bank's board. The foundation is the top shareholder in the bank with a 34.9 percent stake while French insurer Axa and J.P. Morgan also have small holdings.


In addition to the internal audit committee and the risk management department, some board members also criticized the type and size of investments carried out by the finance department and the lack of accountability, sources said.

In 2011, two board members - Francesco Gaetano Caltagirone and Axa representative Frederic Marie de Courtois d'Arcollieres - raised questions about what they said was an excessive exposure to Italian government bonds, according to a source close to the matter.

Caltagirone declined to comment as did Axa.

In a letter written in January 2010, Vigni called for increased accountability of the finance department and mentioned a planned revamp of the structure, already approved by the board. But in November 2010, after follow-up checks by the risk control unit, the audit committee was still not happy with the dealings of the finance department.

"It is necessary to intensify current efforts so as to complete the corrective actions started," the committee said in a document dated November 12, 2010, citing among others the need to strengthen controls on counterparty risks and collateral management.

Monte dei Paschi's 25-billion euro Italian government bond portfolio made a net return of just 65 million euros in the first nine months of 2012 because of a fall in benchmark European interest rates.

It would have made around 1 billion euros a year had the bank not carried out interest rate swaps in 2009 that moved almost the entire portfolio to floating rates, which fluctuate in line with the market, from fixed rates.


The audit committee formally complained to Vigni that Baldassarri was using his own cell phone to execute financial transactions. This contravened the lender's rules, which demanded the use of the bank's fixed-line phones so that conversations could be recorded.

"Baldassarri replied that because he was making deals with Asia on a different time zone, he had to make the calls from home and could not use his office phone. In the end, nothing changed," a senior source said.

In a letter to the audit committee seen by Reuters, Vigni wrote that some trading operations had indeed been carried out by cell phone, and had therefore not been recorded, but were nonetheless properly registered with the front office.

A former executive at the bank said the board did not put any limits on the total size of deals Baldassarri could undertake. "There were some limits, not in terms of volume but in terms of risk. It was a strategic choice by the board," this person said.

"As in all banks there was a structure that could take risks and another one that was supposed to monitor that. As far as I know the Bank of Italy was aware of this model, and asked for changes. Probably this model was inadequate."

A November 9, 2010 Bank of Italy report, also seen by Reuters, showed how inspectors from the central bank had raised concerns about risky derivatives trades after they visited the bank from May to August 2010. The inspectors specifically raised the deals with Nomura and Deutsche, which are now at the heart of the scandal.

The Bank of Italy - led until 2011 by Mario Draghi who is now the European Central Bank Chief - has said it realised the "true nature" of the contracts late last year, after Monte dei Paschi's new management discovered the document in the safe. ($1 = 0.7370 euros)

(Additional reporting by Silvia Ognibene in Siena, Lisa Jucca and Emilio Parodi in Milan,; Writing by Carmel Crimmins; editing by David Stamp)


THE DORK OF CORK's picture


The latest IEA oil market report.

Italy now consumes less then half of the German oil consumption !!
It also consumes slightly less then Spain despite having a extra 13 and a half ~ million people.

OECD Demand based on Adjusted Preliminary Submissions – November 2012

Germany 2.5 MBD (2.1% PA growth)
France 1.8 MBD (3.9 % PA growth)

Italy 1.24MBD (-11.8% PA growth)
Spain 1.26MBD (-7.2% PA growth)

Who got to eat those Italian & Spanish oil rations ?

UK consumption also down massively
UK 1.47MBD (-7.8% PA growth)


Its diesel (work) ration continues its terminal dive.