December 28, 2010 / 4:06 PM / 9 years ago

Italy's Lazio Region sues 11 banks over derivatives

* Regional government claims misled into unfair contracts

* UBS, Merrill Lynch, Citigroup among lenders involved

ROME, Dec 28 (Reuters) - Italy’s Lazio region sued 11 domestic and foreign banks, claiming 82.86 million euros ($108.7 million) in compensation for alleged hidden costs in derivatives they purchased.

The regional government led by Prime Minister Silvio Berlusconi’s People of Freedom party said the contracts “implied a high level of risk which was not consistent with the mere need to cover interests rates and forex exchange”.

Lazio is the latest of a series of Italian local authorities who have sought compensation for allegedly being misled by banks in swap deals they undertook as a means to reduce their debt.

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

On 2.7 billion euros of derivatives deals subscribed by Lazio between 1998 and 2007, it is paying reimbursements of 270 million euros per year, of which 143 million is interest. The Economy Ministry banned new derivatives contracts in 2008, pending new rules.

Among the banks involved, Lazio is suing UBS UBSN.VX(UBS.N) for 28.7 million euros, Citigroup (C.N) for 11.8 million, Merrill Lynch (BAC.N) for 11.2 million, Dexia DEXI.BR for 8.5 million, JP Morgan (JPM.N) for 3.3 million and Unicredit (CRDI.MI) for 3.2 million.

Unicredit on Tuesday declined to comment on Lazio’s initiative, which it announced late on Monday. The other banks were not immediately available.

Last week Italy’s financial police seized 22 million euros from banks. They said they were looking at derivatives deals worth 1.4 billion euros subscribed to by the Tuscany region, Florence city council and three other local municipalities, with banks including Bank of America-Merrill Lynch.

In Italy’s most closely watched case, UBS, Deutsche Bank (DBKGn.DE), 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. (Reporting Valentina Za in Milan; Writing by Giselda Vagnoni; Editing by David Holmes) ($1=.7625 Euro)

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