Feb 14

- First Monte Paschi Banker Arrested With $54mm Stash (ZeroHedge, Feb 14, 2013):

Unfortunately for the apparently not quite big enough to not fail Italian bank’s former leaders, the Monte Paschi derivative debacle just won’t go away. As Reuters reports today, the first (or many) arrests have been made. Gianluca Baldassarri and four other people suspected of criminal conspiracy to commit fraud were arrested after police seized EUR40mm of apparently ill-gotten gains. The alleged fraud and bribery case charges Baldassarri (who left shortly after the arrival of the new CEO in Jan 2012) of misleading regulators over the true nature of a secret derivative contract that was found in a safe by the bank’s new management in October 2012. Echoing JPM’s London Whale, they uncovered a ‘systematic overshooting of risk limits’ in the management of the group’s EUR24bn prop book. Baldassarri was arrested quickly after the police found evidence that he was trying to cash in securities worth over EUR1mm soon after the funds were seized.

Via Reuters,

Italian police arrested on Thursday the former head of Monte dei Paschi’s finance department, who is at the center of a probe into alleged fraud and bribery at Italy’s third largest bank, prosecutors said.

Gianluca Baldassarri is the first person to be arrested in a widening scandal that has rocked the world’s oldest bank and triggered a financial and political storm ahead of Feb 24-25 national elections.

Prosecutors in the Tuscan city of Siena, where the 540-year-old bank is based, said Baldassarri was accused of helping mislead regulators over the true nature of a secret derivative contract that was found in a safe by the bank’s new management in October 2012.

Baldassari left Monte dei Paschi shortly after the arrival of new chief executive Fabrizio Viola in January 2012.

HIDDEN IN A SAFE

Italian prosecutors seized some 40 million euros ($54 million) last week as part of their investigation. The prosecution seizure order, seen by Reuters, said the funds belonged to Baldassarri and four other people suspected of criminal conspiracy to commit fraud.

Internal documents obtained by Reuters show an audit of the department in August and September 2009 had uncovered a “systematic overshooting of risk limits” in the management of the group’s 24-billion euro proprietary portfolio.

Last week, the lender put losses stemming from three derivatives trades at 730 million euros and said it may have to restate previous accounts.

One of the structured finance transactions under scrutiny is a complex 2009 trade between Monte dei Paschi and Japanese bank Nomura, known as “Alexandria”.The bank’s new management says Monte dei Paschi’s board never reviewed the trade for approval, and its true nature only came to light in October last year after a secret contract was found in a safe.

FLIGHT RISK

In their statement on Thursday, the Siena prosecutors said they had feared Baldassarri may be seeking to leave the country because they had evidence he was trying to cash in securities worth more than 1 million euros after the February 7 fund seizure.

The Bank of Italy has faced increasing questions over its supervision, and Mario Draghi, who was governor of the Italian central bank before becoming president of the European Central Bank in November 2011, has also been drawn into the criticism.

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