Enraged shareholders of Monte Paschi bank lashed out at its management on Friday as questions grew about central bank oversight of the historic lender following the uncovering of nearly $1 billion of losses in complex derivatives deals.
The turmoil surrounding Italy's third largest bank has rocked the country's financial establishment and exposed both the government and the Bank of Italy to difficult questions over how the risky deals could have been hidden from regulators.
It has also become a potentially explosive issue in the bitter campaign for a looming election on February 24-25.
The Tuscan bank, which is already seeking a 3.9 billion euro ($5.2 billion) government bailout, this week revealed derivatives and structured finance trades that could cost it as much as 720 million euros.
Prime Minister Mario Monti promised "maximum clarity and transparency" but denied his government shared responsibility for the crisis at the world's oldest bank.
He said the problems affected only Monte Paschi and expressed "full and total confidence" in the Bank of Italy, which was headed by European Central Bank President Mario Draghi at the time the opaque deals were made.
"Italian savers should know, and I think they know, that Italian banks have been among the most solid during the crisis," he said, adding that the problems at Monte Paschi did not affect the rest of the Italian banking sector.
Economy Minister Vittorio Grilli is due to appear before the parliamentary finance committee next Tuesday to answer questions on the case.
However there was stinging criticism from furious shareholders at a special assembly in the picturesque Tuscan town of Siena, where Monte dei Paschi - which says it is the world's oldest bank - was founded in 1472.
"It's as if they were playing poker at the casino, and the more money they were losing, the more they kept gambling," said Pietro Rizzo, a pensioner and former employee of the bank, who was awarded shares as part of his severance payment.
"They were sinking and kept trying to find a way to stay afloat to hide the losses. They should have told the truth," he told Reuters.
Known as "Daddy Monte" because of its enormous influence and patronage, the bank plays a dominant role in the ancient city of Siena, known to countless tourists as the venue for the traditional Palio horse race. Monte Paschi, based in a magnificent palazzo, has an art collection that spans six centuries.
Bank of Italy Governor Ignazio Visco rejected criticism of the central bank's oversight, and said the deals in question had been deliberately concealed from authorities. He put the blame squarely on the Monte dei Paschi management.
But Visco said there was no threat to the stability of Monte dei Paschi, which is already under investigation for the 9-billion-euro cash acquisition of smaller rival Antonveneta in 2007 - a deal that stretched its finances to the limit months before the global financial crisis.
"There is no question that the bank is stable," he said.
"LIKE A CASINO"
In Siena, where Monte Paschi held the special shareholders' meeting on Friday to approve the terms of the state bailout, Chairman Alessandro Profumo said the bank was still evaluating the impact of the derivatives trades on its finances.
The bank management faced a fiery mood from shareholders enraged by a scandal that has raised the specter of nationalization and recalled some of the darkest financial scandals in recent Italian history.
The issue has also forced its way into the election campaign because of the close links between the bank and the centre-left Democratic Party (PD), which is leading in the opinion polls.
The left has run Siena, in what is one of the so called "red regions" of Italy, for decades. The main shareholder in Monte Paschi is a charitable foundation controlled by local authorities.
The town hall and the province of Siena, both run by the PD, name 13 out of the 16 board members at the foundation, which in turns picks the majority of Monte Paschi's board representatives.
"What they did to Monte dei Paschi is worse than Bribesville and Parmalat put together," said Beppe Grillo, head of the anti-establishment 5 Star Movement, who attended the meeting. He was referring to Italy's two most notorious modern scandals.
"That's the scale of the damage they've done. They've turned the party into a bank and the bank into a party," he said.
Monte Paschi shares, which had fallen 20 percent this week, rebounded strongly on Friday, rising almost 9 percent as prices recovered after the recent losses.
The crisis broke out over an opaque series of deals, involving Japanese bank Nomura <8604.T>, Deutsche Bank as well as a trade which several sources said was structured by JP Morgan . JP Morgan declined to comment.
However doubts were raised about the Bank of Italy's assertion that it was unaware of the trades at the centre of the scandal by reports in the Corriere della Sera daily.
It quoted central bank documents saying inspectors had expressed misgivings about the supervision of both the Alexandria and Santorini deals as long ago as 2010.
No immediate comment on the report was available from the Bank of Italy.
The management team in charge at the time of the losses had already been replaced over Monte Paschi's failure to meet European capital adequacy tests.
Visco said the central bank had pushed for a change of management as soon as became aware of the problems at the bank.
The crisis forced former Monte dei Paschi chairman Giuseppe Mussari, who left the bank in April, to step down as head of the Italian banking association this week.
(Additional reporting by Lisa Jucca in Davos; writing by James Mackenzie; editing by Barry Moody and Giles Elgood)