Italian prosecutors have dropped a probe into lender Monte dei Paschi

Oliver Gill
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Monte dei Paschi fared poorly in the recent stress testing of the Italian banking sector (Source: Getty)

Troubled Italian lender Monte dei Paschi received much needed positive news yesterday after Milan prosecutors filed a request to shelve an investigation into alleged market manipulation and false accounting by its chief exec and former chairman.

It emerged last month that Fabrizio Viola and Alessandro Profumo were being investigated in relation to the way the bank accounted for two derivatives trades in its books between 2011 and 2014.

News of the probe threatened to derail a €5bn (£4.2bn) emergency capital raise by the Italian lender.

While the shelving will enable Viola to focus on the fund raise, a judge must first rule on the application.

Sources close to the investigation said that there was sufficient references on the nature of those trades in a separate section of the bank's financial accounts and regulators had been informed.

The probe started last year in Siena and was then transferred to Milan, which has jurisdiction over market manipulation crimes.

The troubled bank recently revealed it was ironing out the €5bn rescue deal to bolster its capital with the help of Mediobanca and JP Morgan – who are in line to net bumper underwriting fees from the deal.

Read more: Investment banks to earn pretty penny from Monte dei Paschi rescue

Italian banks have had a turbulent year with volatility on the stock markets and the extension of negative interest rates by the European Central Bank (ECB) taking their toll.

Italy's banking sector is thought to be burdened with around €360bn in non-performing loans and Monte dei Paschi was the worst performing bank in the European Banking Authority's stress test results in July.

They showed the lender's capital buffer would be wiped out in the event of a sharp economic downturn.