Monte dei Paschi CEO says probe 'emotionally difficult'

August 19, 2016 11:54 AM EDT

Monte Dei Paschi di Siena (MPS) CEO Fabrizio Viola attends a FABI meeting in Milan, Italy, February 12, 2016. REUTERS/Stefano Rellandini


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By Valentina Za and Stephen Jewkes

MILAN (Reuters) - The latest judicial probe into Monte dei Paschi di Siena is a procedural necessity but it could still damage Italy's third-largest bank as it seeks to solve its financial woes, the lender's chief executive said on Friday.

CEO Fabrizio Viola and former chairman Alessandro Profumo are under investigation for alleged false accounting and market manipulation in a case involving derivatives trades, Reuters reported on Thursday.

The probe, which began last year, hits the Tuscan lender as it readies a 5 billion euro ($6 billion) stock sale to strengthen its balance sheet after emerging as the weakest bank in Europe in July stress tests.

"It is with confidence in the judicial system and serenity about the correctness of our actions that I await the quick clarification of the situation," Viola said in a statement.

"I cannot hide that it is emotionally difficult for me as well as for the bank, considering the enormous efforts of these past four years to restore it to health, to witness further negative effects from past events and other people's actions."

The share issue is part of a broader rescue plan engineered to prevent the world's oldest bank being wound up and help the Rome government stabilize the entire banking sector.

Viola reiterated the bank's position that the inquiry was obligatory following a complaint by a shareholder but flagged a risk that it could be "wrongly interpreted at a time when plans we're strenuously carrying out draw a lot of attention."

Prosecutors in Siena allege the bank did not correctly book two derivatives trades known as Alexandria and Santorini between 2011 and 2014. The file has now been transferred to Milan where prosecutors have 18 months to decide whether or not to seek trial for Viola and Profumo.

A source familiar with the inquiry said a shelving of the probe was the most likely outcome, adding Milan prosecutors knew the events well. "I really don't think this probe will be going anywhere," the source said.

The two derivatives trades, as well as a financial instrument used to partly finance the 9 billion euro acquisition of rival Antonveneta in 2007, have already been at the heart of a different Milan probe that ended in January.

Milan prosecutors said then that Monte dei Paschi hid the two derivatives in its books between 2008 and 2012 using as a cover government bond trades that were "only virtual". They sought trial for 13 former managers of Monte dei Paschi, Deutsche Bank and Nomura <8604.T>. All the managers involved and the banks have denied any wrongdoing.

Profumo, a veteran Italian banker formerly at UniCredit, and Viola arrived in Siena in 2012 to turn the bank around after the Antonveneta purchase and the costly derivatives wrecked its finances. He left last summer after overseeing two cash calls for a total of 8 billion euros.

Shares in Monte dei Paschi closed down 2.6 percent, outperforming a 4.3 percent drop in Italian banks <.FTIT8300>. The stock is down 81 percent this year, giving the lender a market value of just 685 million euros.

A source close to the banking consortium behind the rescue plan on Friday dismissed concerns the probe could further complicate the share sale. "It's just a technical point," the source said.

(Reporting by Valentina Za, editing by Isla Binnie and Adrian Croft)



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