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Court rejects Nomura asset seizure in Paschi probe

Bloomberg

An Italian judge rejected a request by prosecutors to seize as much as €1.95 billion ($2.5 billion) in assets held by Nomura Holdings Inc. as they probe how Banca Monte dei Paschi di Siena SpA used derivatives to conceal losses.

The judge in Siena made the decision late Friday, prosecutor Nicola Marini told reporters at a court in the city. Marini said he didn’t have details of the reasoning behind the ruling.

Italian prosecutors are probing claims that Nomura executives colluded with Monte Paschi’s former managers to design one of two derivatives in 2008 and 2009 that hid as much as €557 million of losses at the Italian bank. Tokyo-based Nomura, which isn’t under investigation, said last week it will “vigorously” contest any suggestion of wrongdoing.

Most of the assets sought from the Japanese broker consist of assets pledged by Monte Paschi to Nomura as security for the derivatives contracts and deposited in Germany.

The German central bank rejected Italy’s request to seize the assets earlier this month because it hadn’t received a request valid under German law, a person with knowledge of the situation said at the time. Prosecutors may seek an international court order, the person said.

Monte Paschi sought a €4.1 billion bailout from the Italian government in February, its second in four years, as its capital shortfall widened. The bank has lost 32 percent of its market value since Jan. 17, when Bloomberg News first reported the lender’s use of derivatives, which had never been fully disclosed to shareholders.

As part of the transaction arranged by Nomura and dubbed Alexandria, Monte Paschi bought Italian government bonds using a loan from Nomura. It swapped the fixed-rate interest payments on the bonds with a floating rate and guaranteed the credit risk, effectively making a bet on the future value of Italian government debt.

Monte Paschi was forced to post more margin, or security against the derivatives, with Nomura as the securities tumbled during Europe’s fiscal crisis.