ECB President Mario Draghi was governor of the Bank of Italy when the derivatives scandal was realized in 2010.
PHOTO: AFP/Getty Images
ECB President Mario Draghi was governor of the Bank of Italy when the derivatives scandal was realized in 2010.

Story highlights

Draghi briefed Grilli on the role Italy's central bank had played in supervising Monte dei Paschi

Vittorio Grilli was briefed by Draghi ahead of a special parliamentary hearing on Tuesday

Monte dei Paschi CEO confirmed the bank had to ask the Italian government for an extra €500m in aid

(Financial Times) —  

Mario Draghi, president of the European Central Bank, made an unannounced visit to Milan on Monday to discuss the growing problems at Italian bank Monte dei Paschi di Siena with Italy’s finance minister.

Vittorio Grilli was briefed by Mr Draghi ahead of a special parliamentary hearing on Tuesday concerning the derivatives scandal emerging at the 500-year-old bank.

Responding to a question by the Financial Times, the ECB confirmed that Mr Draghi met Mr Grilli at a finance ministry office in Milan, but declined to comment further.

An Italian government official, who asked not to be named, said Mr Draghi – governor of the Bank of Italy before moving to the ECB in 2011 – wanted to brief Mr Grilli on the role Italy’s central bank had played in supervising Italy’s third largest bank by assets when it uncovered on an inspection visit in 2010 that the Siena bank had taken out risky derivatives positions.

A €3.9bn bailout of Monte dei Paschi by Mario Monti’s technocrat government has become a potentially explosive issue just a month before parliamentary elections, with the prime minister and the Bank of Italy accused by centre-right politicians of failing to be fully transparent about suspected financial irregularities at the Siena bank. The bank has close political ties to the centre-left Democratic party.

Monte dei Paschi, under new management since last April, says losses on three derivatives contracts could amount to more than €700m.

Mr Monti agreed to the special session of parliament when news of the loss-making derivatives contracts emerged through the media.

The Bank of Italy said last week that it only became aware of the “true nature” of the derivatives contracts when Monte dei Paschi’s new management found a previously unknown document relating to the contracts in a safe last October. Italy’s judiciary is investigating the issue. An internal Bank of Italy report, obtained by Italian media, details how a Bank inspection team first learned of the risky nature of the derivatives contracts on a visit to the bank from May to August 2010.

Monte dei Paschi, seeking to staunch an outpouring of allegations surrounding its request for a second state bailout, has admitted the use of derivatives forced it to demand extra help but insisted that it has “no evidence” that bribes were behind the costly acquisition of a local rival that undermined its capital strength.

It last week agreed to borrow €3.9bn from the state, raising an outcry in the middle of an election campaign with centre-right politicians accusing Mr Monti’s government and the Bank of Italy of failing in their oversight duties at the cost of the taxpayer.

Prosecutors in charge of a criminal probe are looking into the reasons why the bank needs a bailout, with investigators focusing on the recent discovery of loss-making derivatives deals and its acquisition of local lender Antonveneta in 2007 for €9bn, almost 20 times its annual earnings and double the multiple for peers at the time.

Fabrizio Viola, chief executive of Monte dei Paschi who was brought into the bank to turn it round a year ago, said on Monday he thought the acquisition of Antonveneta was “expensive” but he had seen no evidence of bribes being paid to secure the deal, a suggestion put forward by prosecutors.

Nonetheless, Mr Viola confirmed that Monte dei Paschi had to ask the Italian government for an extra €500m in aid after it discovered a document in a safe last October that revealed additional losses from a previously unknown derivatives contract.

Mr Viola, who will present the extent of the losses from the derivatives next month, said his investigations had revealed that “the size and structure of [the bank’s structured finance] portfolio was not compatible with a commercial bank”.

Questions have been raised over the Bank of Italy’s supervision after an internal document obtained by Milena Gabanelli, an investigative reporter, showed an inspection visit to Monte dei Paschi in mid-2010 revealed the existence of two derivatives contracts, highlighting the risks. The Bank of Italy, which has said little in public over the affair, said it realised the “true nature” of the contracts late last year after the new management’s discovery.

Two people close to the Bank of Italy said Mr Draghi as governor had ordered intense scrutiny of Monte dei Paschi, including the 2010 visit. As a result Mr Draghi imposed “even more supervisory action”. Documents were submitted to the judiciary in May 2011 and it was the Bank of Italy’s “moral suasion” that led to the ousting of Monte dei Paschi’s management last year as the central bank did not have the powers to dismiss managers, the people said.

Mr Monti, appointed prime minister in November 2011 and now running for election at the head of a centrist alliance, has rejected criticism that he is bailing out “bankers”. The aid would protect banks’ depositors, he said on Monday. Mr Monti expressed “full confidence” in the Bank of Italy under Ignazio Visco and previously under Mr Draghi.