Banks Charged With Fraud Over Sale Of Derivatives To The City Of Milan (DB, UBS, JPM)

According to a report by the Financial Times, four banks have been charged with fraud related to the sale of derivatives to the city of Milan. Italian local governments, which potentially face billions of dollars in losses on their borrowings, could file a series of lawsuits against the four banks, which include Deutsche Bank (NYSE: DB), JP Morgan (NYSE: JPM), UBS (NYSE: UBS), and Depfa Bank, which is owned by Hypo Real Estate Holding.

A trial has been scheduled for the four banks on May 6. The banks are facing charges of misleading the city of Milan on swaps, which were used for making adjustment to interest payments on borrowing of €1.7 billion. The banks have also been charged with pocketing hidden fees of €101 million on the deal. Italian police had seized assets worth €476 million of the four banks in question, in April 2009, in connection with the case. According to lawyers representing local and national governments, the derivatives sales could lead to €2.5 billion in losses for their clients.

Meanwhile, JP Morgan, one of the banks in question, defended itself against any wrongdoing. The bank said in an email that its employees acted with the highest degree of professionalism and entirely appropriately. Hypo Real estate Holding said that neither Depfa nor its employees “violated any law or regulation” and it will defend itself against any charges of fraud. UBS defended itself and said, “No criminal plot was conceived by the UBS exponents.” Deutsche Bank did not make any comment on the issue.