By Eric J. Lyman
ROME, Jan. 28 (Xinhua) -- Italian Prime Minister Mario Monti waded into the derivatives scandal hanging over the country's third-largest bank, vowing to "clear up" a situation involving nearly 1 billion U.S. dollars in newly discovered debt.
But the problems took a political turn, after Monti remarks included a jab at his leading political rival.
Monte dei Paschi di Siena, founded in 1473, is the world's oldest commercial bank as well as the third-largest lender in Italy's troubled banking sector.
The bank had already been crippled by an unusually high percentage of bad loans, a series of downgrades from international ratings agencies, and a disgruntled customer base. Those problems forced the bank to seek 3.9 billion euros (5.3 billion US dollars) in government bailout funds last year.
But the Tuscan banking giant's situation took a dramatic turn for the worse after as much as 720 million euros (961 million U.S. dollars) in hidden losses emerged in connection with deals with Japanese bank Nomura and Germany's Deutsche Bank.
The news sent the bank's share price into a free fall, losing more than 20 percent of its value over three sessions last week, before climbing 5 percent on Friday amid bargain hunting. The shares opened Monday's session slightly higher in heavy trading.
Monti weighed in on the situation on Friday, expressing his "utmost confidence" in Minister of Economy Vittorio Grilli and Bank of Italy Governor Ignazio Visco, who are monitoring the situation.
Monti, an economist by trade, also promised to "clean up" the troubled bank's problems and brushed off fears Monte dei Paschi di Siena was in danger of collapse.
"It is simply a matter of achieving the maximum clarity and transparency," Monti said.
But Monti also said it was important to "root out" political involvement in Italian banks in order to make the institutions more autonomous, competitive, and more efficient.
For generations, Italy's most important banks were controlled by major political parties, companies, trade unions, or the Vatican. In the case of Monte dei Paschi di Siena, the bank had been controlled for years by the Democratic Party (PD), the most powerful center-left political force in Siena, the Tuscan city where the bank is based.
Monti's remarks sparked the ire of Pier Luigi Bersani, the PD's candidate for prime minister in next month's elections. Bersani is leading in the polls, but has recently seen his lead against the billionaire media mogul and three-time prime minister, Silvio Berlusconi, reduced.
Monti is running a distant third in the polls heading into the Feb. 24-25 vote.
Bersani accused Monti of turning an economic problem into political hay by mentioning the PD's connection to Monte dei Paschi di Siena.
"He finds a new flaw in the PD every day, even while I never heard any for a year," Bersani said, a reference to the party's strong parliamentary support for Monti's technocratic government, which came into power in November 2011, following Berlusconi's resignation.
Bersani and Monti had campaigned starting last year without serious criticisms of the other. But in recent weeks, with the election approaching, that approach has changed.
But Monti denied he was criticizing Bersani or the PD in his remarks, but rather "the historical phenomenon of mingling banking and politics," which he said "has to be further rooted out, because it is an ugly beast."
"I will leave the finger pointing to the (other) politicians," Monti said.
Regarding Monte dei Paschi di Siena, most of the political finger pointing so far has been directed at Monti. In addition to Bersani, both Berlusconi and comedian and activist Beppe Grillo - for most of the campaign a second-tier prime minister candidate now running a close fourth behind Monti - have criticized the prime minister's handling of the Monte dei Paschi situation so far.
From the point of view of the bank itself, all parties involved agree with Monti and insist it will weather the storm. Bank chairman Alessandro Profumo has denied there will be revelations of further shortfalls, while Visco, the Bank of Italy governor, who opened up an official investigation into the derivatives issue, said Monte dei Paschi di Siena was "stable."