Moody's puts Monte Paschi on review for downgrade after derivatives

MILAN Wed Jan 30, 2013 11:16pm GMT

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MILAN Jan 30 (Reuters) - Moody's said on Wednesday it had placed the Ba2 rating of Italy's No. 3 bank Monte dei Paschi di Siena on review for a possible downgrade to reflect uncertainty over the impact of a number of structured trades.

The Siena-based bank has been hit by a scandal surrounding an opaque series of derivatives and structured finance deals that have produced losses of 720 million euros ($977.00 million).

The problems date back to at least 2008, when the bank was struggling to absorb its 9-billion-euro cash acquisition of rival Antonveneta just before the global financial crisis hit banks across the world.

The lender is dependent on a 3.9 billion euro package of state support.

The trades, which according to Moody's had not been reported to the regulator or submitted to bank's board, are the subject of an internal review that will be put to the board in mid-February.

"During the review period, Moody's will assess the potential for further direct costs related to the final disposition of these transactions," the rating agency said.

It added it would also look into the possibility that damage to the bank's reputation, or concerns about its risk management, could complicate or delay efforts to repair the balance sheet.

Moody's said it would also assess the extent to which the recent events could affect the government's propensity to extend further support, if needed.

In November, Monte dei Paschi raised its request for state aid by 500 million euros to 3.9 billion euros, citing a possible hit from past transactions as it sought to hedge its exposure to Italian sovereign debt.

"The standalone BCA (baseline credit assessment) could be lowered if the cost of closing the trades exceeds the above mentioned estimate (500 million euros), or if Moody's believes that further material losses or costs are likely to emerge," the rating agency said.

Earlier on Wednesday Monte Paschi denied a report that it could face fresh losses of up to 500 million euros from a trade called "Chianti Classico".

($1 = 0.7370 euros) (Reporting By Stephen Jewkes)