Shareholders of World's Oldest Bank Green Light Capital Increase


Banca Monte dei Paschi di Siena shareholders gave the green light on Friday to a key capital increase in an important step towards calming concerns raised over the health of the world's oldest bank raised by a derivatives scandal which has sparked a political row in Italy.

After seven hours of intense deliberations, general shareholders in Italy's third-largest bank voted to authorize a capital increase of 4.5 billion euros to help pay back loans, with another 2.0 billion euros on top of that for interest payments, if necessary.

The group has been through "three very difficult days," said director general Fabrizio Viola, who was called in to head up the bank in early 2012 and has inherited the messy financial scandal.

"As far as we know, there are no other closets to look in," he said in reference to concern among critics that there may be more derivative scandal skeletons tucked away at the bank.

The meeting was fraught, with speakers constantly interrupted by shareholders furious over the discovery, made public this week, that BMPS risks booking a 220 million euro loss on a potentially dodgy derivative contract -- revelations which saw it hit hard on the stock exchange.

Earlier Friday, the shareholders arriving at the head office of the bank in the central city of Siena had been heckled by crowds from the right-wing Northern League party, demanding answers in an affair that has rankled austerity-hit Italians less than a month before a general election.

"You only know how to steal!" the protesters chanted, accusing the Democratic Party (PD) of being in league with the bank and Prime Minister Mario Monti's technocrat government, which has offered the troubled 15th-century institution a 3.9 billion-euro ($5.2 billion) loan.

But harassed-looking shareholders also called for answers: "We have to shed some light on this. Those who are responsible must pay," said one shareholder, while another said: "I am ashamed by the way our glorious bank has been managed."

Monti, who is running for a second term in the February 24 and 25 general election, has been accused by challenger Silvio Berlusconi and other critics of "favoring" banker friends while ordinary Italians suffer under austerity programs.

The outgoing premier was quick to insist that "Italian banks are among the most solid" in Europe.

Finance minister Vittorio Grilli told journalists on the sidelines of the World Economic Forum in Davos that the banking environment in Italy was "sound".

"No bank really had major problems in Italy (during the eurozone debt crisis), we didn't have to put public money into banks, so you have to keep it in perspective," he said of BMPS's difficulties.

The 2009 derivative deal with Japanese bank Nomura -- nicknamed "Alexandria" -- is one of several under scrutiny by supervisory and law enforcement authorities.

Derivatives, financial instruments based on the value of a specific security or asset, are widely used to hedge against risks from price changes but can result in huge losses if not used carefully.

The "Alexandria" deal was personally approved by the former chairman of the Monte dei Paschi di Siena Foundation, Giuseppe Mussari.

The Foundation, which owns a majority holding of 35 percent in the bank, is controlled by local authorities in the central Italian city of Siena, a traditional stronghold of the center-left, but the PD party has insisted there was no political interference in the bank's management.

BMPS's management has said it only found out about the deal last year.

Comedian-turned-politician Beppe Grillo, who is running with his populist "Five Star Movement" and owns five BMPS shares, said the affair was worse than Italy's "clean-hands" corruption scandal in the 1990s, which toppled several political parties.

The scandal has hit the bank's shares hard, with its stock price dropping more than a fifth since January 15. However they rebounded Friday and closed on the Milan exchange up 11.06 percent.

Public aid for the bank is tipped to take the form of so-called "Monti" bonds, by which the government would buy debt issued by the bank in the second state bailout in four years.

The bank suffered from exposure to the eurozone sovereign debt crisis and needs the aid to bring its core asset reserve ratio up to regulatory standards.

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