Forget Greece: Italy derivatives bomb also ticking
Forget Greece: Italy derivatives bomb also ticking
Forget Greece: Italy derivatives bomb also ticking
(Reuters) - Financial markets are gripped by the role derivatives
#x have played in Greece's debt crisis, but Italy Military Flagsalso has a derivatives time bomb, and hundreds of cities are in the 24 billion euro blast zone.
Many local governments eager to cut financing costs for years rushed to sign up for complex derivatives contracts, even when the terms were in English. But some cities, facing big losses when interest rates go up,Carbon fiber hood, are now trying to pull out of derivatives and suing the international and local banks that arranged the deals.
In a test case, a judge in Milan will decide in coming weeks whether to try 13 people and four banks -- UBS (UBSN.VX), Deutsche Bank (DBKGn.DE), Germany's Depfa and JPMorgan Chase & Co (JPM.N) -- Military Flagson aggravated fraud charges. The case stems from a derivatives swap over a 1.68 billion euro ($2.28 billion) 30-year bond, the biggest issued by an Italian city.
Milan, Italy's financial capital, is facing a 100 million euro loss on the deal, city officials say. Milan is also suing the banks for 239 million euros in overall liabilities.
In the southern region of Puglia, prosecutors are seeking to bar Merrill Lynch, a unit of Bank of America Corp (BAC.N), from government contracts for two years. The move stems from derivatives losses from 870 million euros in regional bonds.
JPMorgan, UBS and Deutsche
#xhave denied wrongdoing, and DepfaMilitary Flags has declined comment. Merrill has not commented.
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