Italy's Monte dei Paschi di Siena (MPS) is suing Deutsche Bank and Nomura as well as two former senior executives for damages involving two structured products that cost the bank millions of euros in losses.
MPS said in a statement that it has initiated an "extra-contractual liability action" against Nomura International in relation to the financial restructuring transaction of the Alexandria notes carried out between July and October 2009; and Deutsche Bank AG for the losses caused by the Total Return Swap transactions carried out through the special purpose vehicle, Santorini Investment, in December 2008.
These MPS investments were long-term multi-annual Italian government bonds funded by repo agreements, whose coupons were asset-swapped for the purpose of hedging interest rate risk.
Italy's third bank by assets has also taken a "corporate liability action" against former chairman, Giuseppe Mussari and former general manager, Antonio Vigni.
The lawsuits were launched last week as the bank seeks compensation for damages regarding the use of financial transactions by its former management involving derivatives to conceal losses, as a consequence of the expansion of the bank when it acquired regional lender Antonveneta for €9bn -an acquisition regarded by market analysts as overpriced.
MPS revealed in January that it had lost €730m on three structured products although the legal actions concern only the two products that incurred higher losses -the Alexandria notes which caused a €273.5m loss and the Santorini investment which resulted in a loss of €305.2m.
A third transaction, a structured credit product linked to the bank's sale of protection on Italy's sovereign debt called Nota Italia, lost €151.7m.
MPS said that Nota Italia was recently restructured with the elimination of the derivative component linked to Italy's sovereign risk and that following termination of the derivative contract, the remaining part of the initial investment continues to be properly classified under the bank's 'loans and receivables.'
MPS received a €3.9bn package from the Italian government last Friday, its second bail-out in four years, with media reports suggesting that a number of international financial institutions are involved in similar cases in a timeframe spanning more than a decade.
According to SRP data, MPS marketed 514 structured products among Italian retail investors with an estimated value of over €30bn. Almost a third of the products (150 products) were sold mainly through the bank's own branches with a significant number (115 structures) being sold through its subsidiary, AXA MPS Financial Services.
Other providers of MPS structured products include Banca Agricola Mantovana and Banca Toscana.
Click below to see details of the products.