Nomura Settles Derivatives Wrangle With World's Oldest Bank

Tom Burroughes

25 September 2015

Japan’s is to forgo €440 million ($494 million) to end a derivatives contract and settle legal claims with the world’s oldest bank, Banca Monte dei Paschi di Siena.

The bank had been due to earn €799 million on the contract, and will instead receive €359 million from Monte Paschi to bring the agreement to an early end, the Italian bank said in a statement.

Monte Paschi was forced to restate its accounts in 2013 to reflect a loss that had allegedly been masked by the Nomura transaction and a similar deal with another lender (source: Bloomberg). Another report, by Reuters, said the "Alexandria" derivative trade has been bleeding money at the Italian lender.

“Banca Monte dei Paschi di Siena and Nomura International have today entered into an agreement governing the terms and conditions for early termination of the transactions entered into in 2009, concerning an investment in Italian BTPs in asset swap due 2034, for an amount of €3 billion, funded with a long term repo for the same duration,” BMPS said in a statement on its website.

“I’m satisfied that we have now closed the last legacy linked with the previous management of the bank, an important outcome that strengthens the equity of Banca Monte dei Paschi, improves the expected profitability and normalises our financial profile,” Fabrizio Viola, chief executive of the Italian bank, said.

The settlement will cut Nomura’s second-quarter results by 34.5 billion yen ($287 million), the Japanese bank said in a separate statement.

Nomura said that, in 2009, it entered into a series of transactions with the Italian bank in which Nomura restructured an existing BMPS investment, known as the Alexandria Notes, in consideration for which Nomura entered into further transactions with BMPS as counterparty. On 1 March 2013, BMPS started legal proceedings against Nomura (along with former members of BMPS’s senior management) in the Court of Florence in which BMPS alleged that Nomura was liable to BMPS for damages in tort for losses allegedly suffered by BMPS as a result of BMPS’s entry into these transactions. Also on 1 March 2013, Nomura issued a claim in the High Court in England for declarations that the transactions were valid and enforceable. BMPS counterclaimed for declarations that the transactions were unenforceable or void and sought restitution of the net amounts paid to Nomura.

"Nomura confirms that Nomura and BMPS have now reached a settlement which resolves the legal proceedings between them in England and Italy," it added.

Monte Paschi, founded in 1472, said it will have an adverse, one-off impact on post-tax earnings for 2015.