(This story first appeared on Jan 24 on www.ifre.com/ - the website for the International Financing Review, a Thomson Reuters publication)
By Helen Bartholomew
LONDON, Jan 25 (IFR) - Five-year senior CDS on Banca Monte dei Paschi di Siena pushed 80bp wider in trading today after CEO Fabrizio Viola confirmed to local media that the bank may have realised more than EUR700m of losses relating to derivatives trades.
The impact on the bank’s subordinated credit was more severe, with five-year protection pushing more than 150bp wider from 750bp to 905bp, according to credit traders at one European house.
The bank, ranked Italy’s third largest in terms of assets under management, is reviewing a number of trades that were agreed between 2006 and 2009, causing the stock to slump 20% over the course of the week on concerns that the bank may have to restate its accounts.
“Clearly the issue is going to raise a lot of eyebrows as practise of this kind is regarded with material concern by investors. The time we had a high profile derivatives based restatement was with Greece, and whilst we would not draw any comparisons on the facts, in terms of sentiment, it is bound to have impact,” said the trader.
Revelations surrounding the derivatives trades add to poor sentiment surrounding the name over the last 18 months.
Since August 2011, senior CDS on the name has widened from 335bp to current levels, while Banca Populare di Milano, similarly rated at BB+ (S&P) BBB (Fitch), has seen its senior CDS spread move marginally tighter over that period to just under 400bp. (Reporting by Helen Bartholomew)