Deutsche Bank and Banca Monte dei Paschi di Siena SpA were criticized by European Union lawmakers for entering into a derivative that obscured losses at the world’s oldest lender before it sought a taxpayer bailout.
Monte Paschi said last week it will hold a 'thorough' review of its accounts after Bloomberg News reported that Deutsche Bank loaned Monte Paschi about $2bn in December 2008 through a deal that helped the Italian lender mitigate a $488m loss from an older derivative contract with the German bank.
'The only way to prevent this kind of thing is through simplicity so that things can’t be hidden in complexity', Sharon Bowles, chairwoman of the European Parliament’s economic and monetary affairs committee, said by e-mail. 'This ultimately means banning products with complex play-offs'.
The criticism adds to pressure on both lenders which are already being examined by regulators. Deutsche Bank is being probed over allegations it rigged global interest rates and Monte Paschi is being investigated for market manipulation before its bailout. The Italian lender, which lost money from the trade, is seeking $665.7m more from taxpayers, bringing the total cost of its rescue to $5.2bn.
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