Monti Repeats Backing For Bank Of Italy Over Monte Paschi

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Italian Prime Minister Mario Monti repeated his backing on Monday for the Bank of Italy over its handling of a scandal at Monte dei Paschi and welcomed signs that the troubled bank was looking for new capital and investors.

Italian Prime Minister Mario Monti repeated his backing on Monday for the Bank of Italy over its handling of a scandal at Monte dei Paschi and welcomed signs that the troubled bank was looking for new capital and investors.

Chairman Alessandro Profumo, appointed last year to turn Monte dei Paschi around, told a newspaper on Sunday that his bank was looking for a long-term investor, a project which Monti endorsed.

"It makes sense to say that it needs more capital," he said during a talk show on Italy's La7 television channel.

Monte Paschi, Italy's third-largest bank and the world's oldest, is fighting for its future after revealing losses of up to 720 million euros ($970 million) from complex derivatives and structured finance transactions between 2006-2009.

The Bank of Italy approved on Saturday Monte dei Paschi's request for 3.9 billion euros of state aid in the form of bonds to be issued by the end of February.

The aid should guarantee the Tuscan bank's immediate funding needs, but has fuelled speculation that it could end up under full state control if it cannot turn the situation around.

On Monday, MPS shares surged more than 6 percent at the open as investors focused on the prospect of a change of control at the bank.

"The return of interest from investors can, in our view, be associated with the possibility of radical changes in governance that the current earthquake at the bank may trigger in the medium term," ICBPI bank said in a broker's note.

The deepening turmoil goes back to its 9 billion euro cash acquisition of rival Banca Antonveneta in 2007, just before the global financial crash.

Monti repeated his backing for the Bank of Italy and its former governor Mario Draghi. Draghi, who is now President of the European Central Bank, was in charge of supervision when the deals in question were made.

"I want to confirm my full confidence in the Bank of Italy and in those who are in charge of it and who have been in charge of it," he said.

As well as the pressure on the Bank of Italy, the issue has also entered the campaign for national elections on Feb. 24-25 because of the close links between the bank and local politicians from the centre-left Democratic Party (PD).

The PD is leading in the opinion polls and rivals have sought to link the party to the scandal.

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