Milan Seized Funds of Four Big Banks

The city of Milan will sue JPMorgan Chase & Co., Deutsche Bank AG, UBS AG, and Depfa Bank Plc with allegations on fraud linked to derivatives’ sale. Accordingly, their assets were seized and their stakes worth $620 million (476 million Euros) were frozen. Aside from Italy, the U.S. government is also investigating similar suspicious deals.

Milan is suing four banks after losing money on derivatives bought from lenders in 2005.

Assets of JPMorgan Chase & Co., Deutsche Bank AG, UBS AG, and Depfa Bank Plc amounting to $620 million (476 million Euros) were seized by Milan financial police due to alleged fraud concerning the sale of derivatives.

Italy’s Treasury said that Milan is one of the 600 municipalities that entered into 1,000 derivatives contracts totaling to 35.5 billion Euros. The city lost about 298 million Euros because the securities swapped fixed rate of interest for a variable rate on bonds worth 1.7 billion Euros.

Due to this, Milan police froze the stakes of the four banks in real estate assets, accounts, and Italian companies. The officials of the banks declined to comment.

A group that studies trades and represents Italian financial analysts (AIAF) headed by Alfonso Scarano said “Milan can be an example to others. This is a good time for borrowers to renegotiate contracts and shed light on potential losses.” Next week, AIAF will testify about the use of derivatives contracts before the inquiry of the Italian Senate.

In addition, U.S. Justice Department has long been investigating whether brokers and banks conspired to overcharge several local governments on swap agreements. The so-called “swaption” deal was challenged by Alabama last year due to the rising bills experienced by local governments across the country after derivative trades with banks backfired.


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