An Italian Bank Caught in the Vortex of Election Politics

MILAN — The chief executive of a regional Italian bank embroiled in a scandal with political and even Europe-wide implications said Monday that recent revelations of past mismanagement and questionable deals would not impede efforts to turn around the beleaguered institution.

“This is still a solid bank,” Fabrizio Viola, chief executive of Monte dei Paschi di Siena, said Monday at a news conference in Milan.

In the past week revelations of transactions that may have disguised the extent of the bank’s losses during the global financial crisis have become political fodder ahead of Italy’s national elections next month.

And the disclosures have raised questions about the degree of scrutiny given Monte dei Paschi di Siena by Mario Draghi, who was still head of Italy’s central bank when the problems developed. Mr. Draghi, of course, is now president of the European Central Bank.

At issue is whether Monte dei Paschi di Siena, or M.P.S. as it is known, hid losses it incurred after acquiring the Italian bank Antonveneta in 2008, for €9 billion — a price that even at the time was widely derided as far too high. Now under scrutiny are two complex transactions M.P.S. conducted with Deutsche Bank and Nomura that critics say enabled M.P.S. to mask some of its losses.

Mr. Viola, part of the new management that came to the bank last year, said Monday that an investigation now under way would produce findings by mid-February, ahead of national elections scheduled for Feb. 24 and 25.

With M.P.S. based in Siena, in a part of northern Italy that is a stronghold of the leftist Democratic Party, the conservative former prime minister Silvio Berlusconi, who is trying to be a spoiler in next month’s elections, has been trying to lay blame for the scandal at the Democratic Party’s doorstep. Meanwhile, the current prime minister, Mario Monti, has had to defend his government’s decision to bail out the banks with loans granted last year.

More broadly, though, the problems at M.P.S. provide an extreme example of an old-line banking pattern that analysts say is still disturbingly commonplace in Europe. As with most Italian banks, M.P.S.’s primary shareholder is a local foundation, which receives dividends that are to be used to pay for social projects as well as cultural and charitable enterprises. That gives M.P.S. an extensive veil of political relationships that can be hard for any national overseer to peer through.

The same combination of local political influence and lax control has also afflicted many banks in Germany and Spain, with taxpayers left suffering the consequences. Indeed, grave lapses by national regulators are among the main reasons European leaders have decided to put the European Central Bank in charge of bank regulation.

But now there is a possible snag in the plan: Mr. Draghi, who is expected to lead that overhaul, was at least nominally the overseer of M.P.S. while it was digging itself into a deep hole.

Many analysts, though, question whether Mr. Draghi — or any Italian regulators — would have had enough information to recognize the bank’s problems, since there appears to have been a deliberate attempt to conceal losses. And in any case, the Bank of Italy may not have had legal power to prevent M.P.S. from making bad decisions.

But at the very least Mr. Draghi’s proximity to the scandal is untimely as the E.C.B. and euro zone leaders finally seemed to be rebuilding credibility in the common currency. The decision to create a centralized banking supervisor at the E.C.B. is a big part of the effort to restore confidence in the euro zone.

“Italy is a country where even national regulators can have a trouble getting a grip on what is happening at the local level,” said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels. Mr. Véron stressed that there was no evidence Mr. Draghi deserved any blame for the Monti dei Paschi scandal.

But Mr. Véron said, “It clearly does create perception problems, because there’s a question mark about the appropriateness of the Bank of Italy’s response at the time.”

“At this point it’s only a question mark,” Mr. Véron said. “We don’t have any facts.”

A spokesman for the E.C.B. declined to comment Monday.

Article source: http://www.nytimes.com/2013/01/29/business/global/an-italian-bank-caught-in-the-vortex-of-election-politics.html?partner=rss&emc=rss