Italy Court Rejects Challenge to State Bailout of Monte Paschi

Feb. 22 (Bloomberg) -- An Italian court rejected a legal challenge to Banca Monte dei Paschi di Siena SpA receiving 3.9 billion euros ($5.2 billion) in state aid.

The court in Rome threw out the claim by consumer group Codacons that the Bank of Italy and other regulators didn’t adequately monitor the Siena-based lender’s activities, the court said in a ruling published on its website. The central bank said two weeks ago the assertions were “inadmissible and unfounded.”

“Blocking aid would have hurt Italy’s credibility,” Alessandro Frigerio, a fund manager at RMJ Sgr in Milan, said by telephone before the ruling was announced. “We have never seen a government procedure, backed by the central bank, obstructed by a tribunal.”

Monte Paschi, engulfed by investigations of its former managers, said on Feb. 6 it will take a 730 million-euro hit to its assets after reviewing structured deals from 2008 and 2009 that hid losses. In one transaction that wasn’t fully disclosed, the bank made a money-losing bet on Italian government bonds in a structured deal disguised as a loan, Bloomberg News reported on Jan. 17. Accounting irregularities also prompted a criminal probe targeting previous management.

The bank is seeking financial aid from the government to bolster its balance sheet after failing to meet capital requirements set by the European Banking Authority. The company is also selling assets and reducing risk and costs in a three- year plan to restore liquidity.

Under the government’s rescue plan, Monte Paschi will sell securities, dubbed “Monti bonds” after the prime minister’s surname, to the government with a 9 percent coupon that may rise to as much as 15 percent.

--Editors: Mark Bentley, Jerrold Colten