Tag Archives: swaps

Stacy Summary:  . . . And a division of Hypo.  This story is a must-read.  It’s remarkable how unapologetically criminal the banking industry became during the Bush administration and continues to this day.  Their blatant criminal behaviour in the midst of  a country famous for its mafia suggests they also believed themselves immune to the normal laws of little people.  While frauds similar to the story below happened all across the US as well, no charges will ever be filed on home turf against the capos, and I doubt any action against them would be tolerated as too many Americans now equate crime syndicates with capitalism.  So threatening the crime syndicates is threatening ‘capitalism.’  In Italy, however, I think the derivatives mafia may have messed with the wrong country.  Italy’s anti-mafia tools are specifically designed to deal with ‘captured’ politicians who used to interfere on behalf of powerful crime bosses . . . something the US will need if it is ever going to be able to circumvent the crime families capture of Congress via their lobbyist foot soldiers.

• Criminal investigation into Milan swaps

As part of the deal, the same four banks were hired by the city to advise it on how to use the new bonds to restructure its existing debt in a way that would cut costs.

The banks had two pieces of advice for Milan: First, the city could save money by buying interest-rate swaps, which are derivatives designed to keep monthly payments low as rates change. Second, the institutions best prepared to sell them those swaps were none other than the banks themselves.

The four banks thus play four roles — as underwriters, advisers, swap dealers and counterparties in the derivative contracts.

Undisclosed Fees

The group of banks wrote in a June 3, 2005, letter that the bond issue would save Milan about 55 million euros over the 30- year life of the bonds.

The firms never said what their fees on the swaps would be, public records show. Today, Milan faces so-called mark-to-market losses of 231 million euros on its swaps, according to council member Davide Corritore.

In all, the city’s losses include at least 101 million euros in hidden fees, according to Milan prosecutor, Alfredo Robledo, who’s investigating the swap deals. The fees were buried because they were built into swap interest rates without any written explanation, the prosecutor says.

That 101 million euro price tag for Milan’s dealings with the four banks was 599 times the original figure of 0.01 percent for selling bonds and providing advice.