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Categorized | Banks

Santander drawn into Italian bank scandal

Posted on January 31, 2013

The fallout from a state bailout of Monte dei Paschi di Siena, the world’s oldest bank, widened on Thursday as prosecutors questioned the head of Santander Italy.

Prosecutors have intensified their inquires into the government’s controversial decision to go ahead with €3.9bn in loans to Monte dei Paschi, following revelations that its former management – under investigation for alleged fraud and other financial crimes – hid lossmaking derivatives contracts from supervisors.

    Santander has been drawn into the investigations having sold the Italian regional bank Antonveneta to Monte dei Paschi for €9bn in 2007, a costly acquisition at almost 20 times earnings that undermined the Tuscan bank’s capital strength. It later sought to bolster its capital through a series of deals including the use of structured finance.

    Prosecutors in Siena questioned Ettore Gotti Tedeschi, the head of Santander Italy, for four hours.

    The Siena tribunal said it was also considering opening an inquiry into insider trading and stock manipulation at the 500-year-old lender.

    The investigations follow a public and political outcry over the bailout of Monte dei Paschi, the bank’s second in four years, that has animated debate in the run-up to national elections next month.

    The Bank of Italy has already been forced to defend its role as banking supervisor, while Giuseppe Mussari, the head of the banking lobby, resigned from his role due to his links with Monte dei Paschi. He was chairman of Monte dei Paschi until last year when he was forced to exit under pressure from shareholders.

    Questions had been raised about Monte dei Paschi’s acquisition of Antonveneta almost immediately after the deal was finalised.

    Santander had acquired Antonveneta from the break-up of Dutch bank ABN Amro for €6.6bn, and in one of the most audacious “flips” of recent years, sold it to Monte dei Paschi only a few days later for €9bn.

    The fact that Monte dei Paschi has since had to ask the Italian state for roughly the amount as a bailout as Santander made in profit from the deal has especially angered senior Italian officials.