S&P cuts Monte Paschi rating on derivative loss concerns

MILAN (Reuters) - Ratings agency Standard & Poor's cut its long-term credit rating on scandal-hit Monte dei Paschi di Siena by one notch to "BB" on Thursday, citing concerns over potential losses from structured finance contracts.

Last week, Italy's third-biggest bank said that complex derivative trades, which only came to light recently, could cost it 720 million euros (?616.02 million).

Prosecutors in Siena, where the 540-year-old lender is based, are looking into allegations of fraud in connection to derivatives trades, as well as corruption in the 2007 acquisition by Monte Paschi of smaller lender Antonveneta.

Standard & Poor's said its rating remained on credit watch negative to reflect possible losses from the transactions, which it said may be larger than previously announced.

"We believe the above mentioned investigation could identify losses larger than originally anticipated," it said.

S&P, which also cut ratings on all classes of Monte Paschi's subordinated debt and preferred stock by one notch, said the potential losses showed a risk of management weaknesses.

It said its current rating on the Tuscan bank incorporated two notches of extraordinary government support.

Monte Paschi is set to receive 3.9 billion euros of state aid by the end of February.

(Reporting by Danilo Masoni and Antonella Ciancio; Editing by Marguerita Choy)

Source: http://news.yahoo.com/p-cuts-monte-paschi-rating-derivative-loss-concerns-204245140--finance.html

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