Jail Asked for Ex-Deutsche Bank, Nomura Staff in Paschi Case

May 17, 2019 Updated: May 17, 2019

Milan prosecutors are seeking jail sentences for ex-bankers of Banca Monte dei Paschi di Siena SpA, Deutsche Bank AG, Nomura Holdings Inc. involved in allegedly falsifying the accounts of the troubled Italian lender and requested almost $1 billion be seized from the foreign banks involved.

Prosecutors led by Giordano Baggio asked for jail sentences of five years and eight months in case of convictions for Deutsche Bank’s Michele Faissola, former head of global rates, for Michele Foresti, former head of structured trading, and Dario Schiraldi, former head of European sales. He asked for a six-year jail sentence for Sadeq Sayeed, former CEO of Nomura International.

The prosecutors also requested eight-year jail sentences for former Monte Paschi Chairman Giuseppe Mussari and ex-General Manager Antonio Vigni in Milan on May 16. They also asked for the seizure of more than 440 million euros ($492 million) of funds each from Deutsche Bank and Nomura.

Derivatives Trades

The prosecutors’ requests came during a two-and-half-year trial in one of the highest profile European banking cases in the last decade, first revealed by Bloomberg News. They are seeking to prove Monte Paschi colluded with Deutsche Bank and Nomura to hide losses at the Italian lender by using complex derivatives trades, respectively dubbed Santorini and Alexandria, that led to a misrepresentation of its finances between 2008 and 2012.

The bankers also are facing charges ranging from market manipulation to obstruction of regulatory activities. In addition to the former managers, the German and Japanese banks themselves are on trial, while Paschi reached a plea-bargain deal in 2016.

Lawyers for Deutsche Bank and Nomura didn’t have an immediate comment, while a lawyer for Monte Paschi didn’t immediately respond to calls seeking comment.

In his closing arguments at a hearing May 16, Baggio also accused Deutsche Bank of running a transnational criminal association. In previous hearings, he used internal Deutsche Bank documents and emails to bolster his case that there were additional, aggravating circumstances to the charges against the German lender.

Prosecutors argued that the complex transaction Deutsche Bank helped put in place in 2008 hid about 430 million euros of losses that Paschi was facing on a previous deal, while Nomura’s derivative hid more than 300 million euros of losses not reported in the bank’s 2009 income statement.

Both transactions were carried out to cancel previous losses by building up two-leg deals, with one leg granting Monte Paschi an immediate gain and the other loss-making one designed to last for several years in order to pay back the investment banks for the gains realized by Paschi on the first one, according to prosecutors.

Hidden Losses

“Monte Paschi hid losses by accounting derivatives as if they were repurchase agreements,” Baggio said in his final remarks on May 2. Both Nomura and Deutsche Bank, to help Paschi in its criminal intent, received a sizeable profit from the lender that could be considered “the price of the crime,” Baggio said.

Deutsche Bank defendants in previous hearings rejected the allegations saying that Santorini was a legitimate deal and carried risk, and was not designed as a sure-fire bet to hide losses at the Italian bank, as prosecutors allege. Nomura and Monte Paschi’s lawyers also rejected the allegations against their defendants, arguing that the deals were conceived to boost Monte Paschi’s interest margin and reduce previous risks.

Holding derivatives for a nominal value of 5 billion euros exposed Paschi to big risks that if properly represented would have led the bank to an additional 1.5 billion euros of losses in 2011 amid the sovereign debt crisis, the prosecutor said. “The bank’s exposure to derivatives in such difficult market conditions drained Monte Paschi’s liquidity, contributing to a bank’s technical default,” he said. That forced the Bank of Italy to give Monte Paschi a bridge loan and request a management reshuffle, Baggio said.

Prosecutors requested acquittals for Ivor Dunbar and Matteo Vaghi, former managers at Deutsche Bank. They also sought jail terms for Marco Veroni, Raffaele Ricci, Daniele Pirondini, Gian Luca Baldassarri, and Marco Di Santo—all former employees of the three banks.

The trial has been adjourned to May 23. In the next hearings, civil parties and defense lawyers will present their closing arguments before the judges start deliberations on the decision.


By Sonia Sirletti & Sergio Di Pasquale