Wednesday, March 17, 2010

An Italian derivatives headache for JP, UBS, Deutsche and Depfa

Original posted on FT Alphaville by Joseph Cotterill:

It would appear Italian prosecutors’ anti-derivatives crusade has stepped up a gear. As Reuters reported Wednesday lunchtime:

An Italian judge ordered on Wednesday four international banks to stand trial on charges four international banks to stand trial on charges stemming from a 2005 derivatives swap for a 1.68 billion euros bond by the city of Milan, legal sources said.

The banks are UBS, Deutsche, JP Morgan, and Depfa. Bloomberg has more details:

Judge Simone Luerti scheduled the trial of the four firms, 11 bankers and two former city officials for May 6, Prosecutor Alfredo Robledo said after a hearing in Milan today. The banks allegedly misled the city on swaps that adjusted interest payments on 1.7 billion euros ($2.3 billion) of borrowings.

The announcement of the trial follows a long legal campaign against the banks on the part of the Milanese authorities since last year – one which has included asset seizures.

Of course, that campaign followed a long love affair by Italian local councils with complex derivative deals.

Oh, and Depfa, for the uninitiated, is a Dublin-based German-Irish bank owned by Hypo Real Estate, which was itself nationalised by Berlin a year ago.

UBS maintained in an emailed statement that “no fraud was committed by UBS nor by any of its exponents to the detriment of the City of Milan. The preliminary hearing is not, by definition, the place for evaluating at length the merits of the case”.

JP Morgan asserted its intention to “vigorously” defend itself against the charges:

We are vigorously defending the legal proceedings brought by the prosecutor and are confident that the strength of our legal position will be demonstrated through the judicial process. The J.P. Morgan employees involved in the transactions acted with the highest degree of professionalism and entirely appropriately

Hypo said neither Depfa nor its employees “violated any law or regulation”, while Deutsche said it expected to be cleared of all charges, and that its employees acted with integrity.

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