Italy's Monte Paschi Posts €3.17bn 2012 Loss on Bad Debt and Derivatives

Banca Monte dei Paschi di Siena has reported a multibillion euro loss of more than €1bn more than analysts had estimated after it was hit by higher bad debt provisions and losses generated from derivatives trades that are under investigation.

According to the group's 2012 annual results statement on its website, it was hit by a net loss of €3.17bn, compared with consensus analyst estimates that ranged from €2.29bn to €2.5bn.

In 2011, Monte Paschi, the world's oldest bank, made a €4.7bn loss.

In order to shore up cash, the group said it was slashing headcount by 2,565 through early retirement and re-engineering departments. It would also bring in changes to management that would result in saving €130m in 2013 and up to €180m in 2014.

Despite the huge loss incurred through a raft of "non-core and one-off events", the group said it would not be short of cash for its capital requirement, enforced by the European Banking Association, as it had issued €4.1bn in new financial instruments in the first quarter this year.

In February, Monte Paschi received a €4bn state bailout to boost its ailing capital base after it lost €730m from its net assets in a string of derivatives trades. It 2012 results confirm this amount.

On 27 March, media reports said that Italy's tax police searched the Milan offices of Nomura as part of a judicial probe into the Italian lender. It had already carried out the same procedure at Monte Paschi's premises in Siena as part of a newly launched investigation into suspected insider trading.

Monte Paschi revealed recently that it was seeking €1.2bn in damages from two former employees, as well as Deutsche Bank and Nomura, after it suffered huge losses from a number of structured finance deals.

The group revealed in a statement that the bank's board had started liability actions and claims for damages against former chairman Giuseppe Mussari and former general manager Antonio Vigni, along with Nomura and Deutsche Bank, over the two most costliest trades. the amount of damages claimed was not specified.

The bank said it had started corporate liability action in the civil court in Florence against Mussari and Vigni and an extra-contractual liability action against Nomura regarding the financial restructuring transaction, known as Alexandria, carried out between July and October 2009.

It added that it had also started corporate liability action against Vigni and an extra-contractual liability action against Deutsche Bank over total return swap transactions carried out through the special purpose vehicle, Santorini Investment.

Media sources said that Monte Paschi was seeking "at least €700m" from Vigni, Mussari and Nomura and "at least €500m" from the same two ex-employees and Deutsche Bank.