Italian bank involved in derivatives scandal seeks outside investor

Reuters reports that the Italian bank involved in the derivatives scandal is looking for an outside investor.

One might ask the question of could someone invest in that bank.  After all, the definition of investing involves being able to complete three steps:

• Independently assess the risk and value the investment.  To do this, the investor needs access to all the useful, relevant information in an appropriate, timely manner.
• Compare the independent valuation to the price being shown by Wall Street.
• Make a buy, hold or sell decision based on the difference between the independent valuation and the price shown by Wall Street.

In the case of the Italian bank, no investor can complete the first step because the bank does not disclose all of its global asset, liability and off-balance sheet exposure details.

In fact, it took the bank several days to disclose the existence of $1 billion in losses on three derivative contracts.

Who knows what else is lurking on or off the bank's balance sheet.

This is not to say that someone might not be willing to place a bet on the contents of the 'black box' that is the Italian bank.  This is a gamble and not an investment.

The Italian bank highlights the simple fact that all banks are 'black boxes' and that it is impossible to invest in them.  One might gamble, but that is it.  The only way this will change is when banks are required to disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details.

Monte dei Paschi di Siena said on Sunday it was seeking a financial investor as the political storm over a derivatives scandal at the ailing bank intensified ahead of next month's Italian election. 

Italy's third-biggest lender, which needs state loans to stay afloat, this week revealed opaque derivatives trades, conducted between 2006 and 2009, that could cost it some 720 million euros. 

The scandal has turned the spotlight on Monte Paschi's close political ties with the centre left and on possible oversight failings by the Bank of Italy (BOI), then led by current European Central Bank chief Mario Draghi. 

"I would like to have a long-term financial investor," Monte Paschi Chairman Alessandro Profumo told Italian business daily Il Sole 24 Ore on Sunday. "Nationality is not a problem. The important thing is that it believes in our project"....

In fact, placing a bet on the Italian bank is entirely a question of belief as there are no facts available on which to make an informed decision.

Corriere della Sera daily on Sunday published excerpts from the minutes of Monte Paschi meetings in 2011 showing several board members expressing concern about the bank's portfolio, overladen with long-term Italian government bonds. 

"The situation is no longer sustainable, we must take steps to reduce these positions," said former vice chairman Francesco Caltagirone in September 2011 as Italian government bond yields soared during the apex of the euro zone debt crisis.... 

Monte Paschi's new management have said the main loss-making derivatives it uncovered involved Japanese bank Nomura and Deutsche Bank.