U.S. Markets closed

UK court clears Nomura's action against Monte Paschi

The entrance of Monte Dei Paschi bank headquarters is pictured in Siena January 24, 2013. REUTERS/Stefano Rellandini

By Estelle Shirbon

LONDON (Reuters) - A British court has allowed Japanese bank Nomura <8604.T> to go ahead with legal action against Monte dei Paschi di Siena (MIL:BMPS) over risky derivatives trades that got the Italian bank into trouble.

The complex deals agreed in 2009 between the two banks are already the subject of criminal investigations in Italy. Monte dei Paschi is seeking 700 million euros (596 million pounds) in damages from Nomura and others in a Florence court.

The ruling from the High Court in London is the latest blow to the Italian bank which received a 4.1 billion euro state bailout this year and faces the prospect of nationalisation if it cannot pull off a substantial capital increase.

Nomura, which denies any wrongdoing, launched its own legal action against Monte dei Paschi in London in March, seeking a series of declarations including that the contracts between the banks are valid.

Monte dei Paschi responded by challenging the jurisdiction of the British court over the matter.

On Thursday, Mr Justice Eder ruled in favour of the Japanese bank.

"I reject the application by Banca Monte dei Paschi di Siena and refuse to order a stay of these English proceedings," the judge said in a very brief court hearing.

Monte dei Paschi's shares fell more than 3 percent shortly after the ruling was announced but pared losses to trade 0.9 percent lower at 1104 GMT.

A Nomura spokesman said the bank will continue to take all necessary steps to protect its position.

There was no immediate comment from Monte dei Paschi.

The dispute between the two banks stems from a series of agreements including an asset swap transaction, a long-term repo and a repurchase facility agreed in 2009.

Monte dei Paschi alleges that its former chairman Giuseppe Mussari and former general manager Antonio Vigni colluded with Nomura to set up these opaque structured finance transactions to conceal losses of about 220 million euros which had accrued under an earlier investment known as the Alexandria Notes.

So far, the High Court has not delved into the substance of the dispute but has dealt with a series of legal issues to determine whether it had jurisdiction to hear Nomura's case against Monte dei Paschi.

Eder's 26-page ruling said that although the arguments of both sides were finely balanced, it would not be in the interest of justice to halt the English proceedings.

One of the points he took into account was the amount of time it would take for the dispute to make its way through the Italian justice system.

"The nature of the dispute and the very significant sums involved in the present case make it highly desirable that the issue of the validity and enforceability of the agreements is determined as swiftly as possible," the judge wrote.

(Editing by Erica Billingham)