April 22, 2013 / 1:00 PM / 7 years ago

Deutsche Bank seeks to avoid any seizure in Monte Paschi probe-sources

SIENA, Italy (Reuters) - Lawyers for Deutsche Bank (DBKGn.DE) met Italian prosecutors investigating loss-making trades at Italian bank Monte dei Paschi (BMPS.MI) on Monday to avoid any risk of a seizure order, three sources with direct knowledge of the matter told Reuters.

The logo of Germany's largest business bank, Deutsche Bank, is illuminated at the bank's original headquarters in Frankfurt January 31, 2012. REUTERS/Kai Pfaffenbach

A financial derivatives deal known as “Santorini” in 2008 between Deutsche Bank and Monte dei Paschi di Siena is one of three trades at the heart of a probe into alleged fraud at Italy’s third biggest lender.

The trades exacerbated a capital shortfall that last year forced Monte dei Paschi to request 4 billion euros (3.4 billion pounds) of state aid and brought it close to collapse.

Prosecutors in Siena last week ordered the seizure of up to 1.95 billion euros from Japanese bank Nomura (8604.T), which carried out another derivatives deal, known as “Alexandria, with the Tuscan bank.

In the seizure warrant against Nomura, the Siena prosecutors describe the Alexandria and Santorini trades as “twin” operations.

“They (Deutsche Bank) are seeking a dialogue with the prosecutors given the similarities between Alexandria and Santorini,” one of the sources said.

“They want to avoid becoming the target of a seizure measure like the one for Nomura,” the source said.

Deutsche Bank declined to comment. The German bank has rejected any suggestion of wrongdoing, saying that the Santorini deal was subject to rigorous internal approval processes.

Like the Alexandria trade, the Santorini deal involved the purchase of around 2 billion euros of Italian government bonds by Monte dei Paschi financed through a long-term repurchase agreement with Deutsche Bank.

Both deals were done under Monte dei Paschi’s previous management to conceal losses, prosecutors say.

But as the value of the bonds guaranteeing the loans fell because of the euro zone crisis, the bets backfired and Monte dei Paschi was forced to put up more collateral with both banks.

In the case of the trade with Nomura, Monte dei Paschi had deposited 1.87 billion euros by way of collateral as of April 5, the prosecutors said in their seizure order, explaining their move with the need to stem losses at the Siena-based bank.

Asked whether the prosecutors could move against Deutsche Bank as they have done with Nomura, the source said this possibility “exists”.

The seizure order against Nomura, which must be ratified by a judge in the next few days, faces a series of legal hurdles. The Siena prosecutors first tried to freeze funds held by Nomura in Germany through Europe’s Target 2 interbank payment system, asking the Bundesbank to intervene.

But the German central bank declined to do anything and a source close to the matter said it could not enforce any such seizure request without a ruling by a German court.

Writing by Silvia Aloisi; Editing by Greg Mahlich

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