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Italian police seize 22 million euros in derivatives case

FLORENCE, Italy (Reuters) - Italy’s financial police have seized 22 million euros (18 million British pounds) at domestic and foreign banks as they probe allegations of fraud involving the sale of derivatives to municipalities, they said on Tuesday.

The probe is the latest in a series by Italian authorities into alleged misleading swap deals signed by the country’s local authorities to reduce their debt.

Police said they were looking at derivatives deals for a total of 1.4 billion euros subscribed to by the Tuscan region, the Florence city council and three other local municipalities, with banks including Bank of America-Merrill Lynch BAC.N.

Assets of Deutsche Bank DBKGn.DE, France's Natixis CNAT.PA, UBS UBSN.VX Investment Bank of London, Dexia Crediop and Banca Monte dei Paschi di Siena BMPS.MI were also seized, police said.

UBS, Merrill Lynch and Monte dei Paschi di Siena declined to comment. The other banks were not available to comment.

“We estimate local institutions involved in the derivatives contracts incurred losses of around 123 million euros,” police said in a statement.

A police official said 22 bank officials were under investigation on aggravated fraud charges, and that some of their homes were searched.

Police said the assets seized, including 15 million euros at Merrill Lynch International in Dublin, were the alleged illicit profit banks made from selling unfavourable swap contracts.

Numerous local governments in Italy have taken banks to court over derivatives deals.

In Italy’s most closely watched case, UBS AG, Deutsche Bank, Germany’s Depfa and JPMorgan Chase & Co face aggravated fraud charges over an interest rate swap on a 1.68 billion eurobond issued by Milan, the biggest issued by an Italian city.

The banks have denied wrongdoing.

The Economy Ministry banned new contracts in 2008 pending new rules.

Economists last year estimated that Italy’s cities and regional bodies had an exposure to derivatives of about 40 billion euros, with losses of more than 6 billion euros.

($1=.7599 euros)

Additional reporting Valentina Za in Milan; Writing by Antonella Ciancio, Editing by David Cowell and David Hulmes

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