On January 17, Bloomberg News correspondents Elisa Martinuzzi and Nicholas Dunbar broke news of a major scandal in Italy.
Now that the story is out and an investigation is underway, Monte dei Paschi's losses from properly accounting for the effects of the derivatives trades on its balance sheet are expected to total €730 million ($977 million).
Given the bank's close association with the Italian left and the fact that it has received state-backed bailouts since the derivatives trades took place but before they were revealed, the Monti dei Paschi derivatives scandal has become a major storyline in the upcoming Italian national election, just weeks away.
We caught up with Martinuzzi, the Bloomberg News reporter who broke the story, to get some more insight on the scandal and what it means for the election.
She's a financial correspondent based in Milan covering global banking, so she's got a good perspective on the situation.
Below is our Q&A with Martinuzzi.
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How were you able to piece this story together?
EM: Though the last stretch involved pulling an all-nighter, with editors from London, to New York to Hong Kong shepherding the story out, it didn't exactly come together in a day.
Bloomberg
Having then established through other sources that the tip-off was accurate, the next challenge was finding independent experts who could validate the thesis, as well as understanding the complex deal well-enough myself so I could explain it to our readers.
That was possibly the hardest part, because once you start reaching out to more and more sources the clock is ticking.
With my London colleague Nicholas Dunbar, we cast the net wide, from Australia to San Diego. The good news was all the experts we spoke to concurred in their analysis. We had nailed it.
Do you think this scandal raises questions about the integrity of the books at other Italian banks and, by extension, other euro-zone banks outside of Italy?
EM: Italian regulators and government officials have stated that this is a one off, that the Italian banking system is solid.
Still, Monte Paschi has highlighted the challenges that regulators, and not just the Bank of Italy, are constantly grappling with. The Bank of Italy spotted accounting anomalies at the world's oldest lender in 2010, but there wasn't enough to suspect deliberate wrongdoing.
Part of the problem, according to the Bank of Italy, is that there's room for interpretation under IAS accounting rules. The Italian central bank is still in discussions -- almost two years on -- with accounting bodies on this very subject.
Without a paper trail linking Monte Paschi's new deals with the existing losses, the regulator says it wasn't possible to spot the cover-up.
For accounting experts, the key lies in seizing on the complexity of these deals, so complex because they're hiding their stated objective. That should be the red flag.
How has the Italian mainstream media been characterizing the link between Monte dei Paschi and the Italian left in the run-up to the election? How is the media coverage of the scandal impacting the race?
EM: It's a fact and not a matter of opinion that politics was deeply involved in the management of Monte Paschi. The foundation that has been the bank's biggest shareholder is run by political appointees and names Paschi's management.
Politicians across the political spectrum have seized on the opportunity grabbing the headlines with attacks on the Democratic Party, which runs the local government and controls the foundation.
Newspapers have been carrying front-page stories and multiple-page coverage on Paschi for two weeks now. From reports multi-billion slush funds, to exposes on who knew what when at Paschi, the media has been scrambling to get ahead in the coverage.
The latest election polls show a mixed effect. The center-left coalition led by front-runner Luigi Bersani of the PD gained 1 percentage point to 33.8%, according to a weekly poll by SWG published Feb. 8, but is still lagging the 34.1% support it boasted on Jan. 25.
Anti-establishment comic-turned-politician Beppe Grillo’s Five Star Movement has also gained in the last SWG poll to 18.8% while former prime minister Silvio Berlusconi's coalition was unchanged.
Mario Draghi mostly brushed off questions regarding the Monte dei Paschi scandal at today's ECB press conference - but will this be a roadblock for establishing a single supervisory mechanism at the ECB?
EM: In Draghi's own words, the Monte Paschi scandal showed that having more powers would have helped. It's not clear whether the ECB will have such powers as the rules are still being written.
There will have to be "profound legislative changes", Draghi tells us, including rules that allow the supervisor to judge a manager and to remove a manager if necessary.
Perhaps Monte Paschi will help facilitate the necessary adjustments as it brought to life what can go wrong at a critical time for the ECB.