Tuesday, October 19, 2010
MEANWHILE, BACK IN HOLLYWOOD, PELOSI'S STILL CHASING MOMMIES TO THE ATM TO REPAY ACORN'S $120 BILLION DOLLAR CRIMINAL ADDICTION. WILL IT WORK?
Milan Police Seize UBS, JPMorgan, Deutsche Bank Funds
By Elisa Martinuzzi - April 28, 2009 10:12 EDT
April 28 (Bloomberg) -- Milan’s financial police seized 476 million euros ($620 million) of assets belonging to UBS AG, Deutsche Bank AG, JPMorgan Chase & Co. and Depfa Bank Plc amid a probe into alleged fraud linked to the sale of derivatives.
The police froze the banks’ stakes in Italian companies, real estate assets and accounts, the financial police said in a statement today. The assets seized yesterday also include those of an ex-municipality official and a consultant, the police said.
The City of Milan is suing the four banks after it lost money on derivatives it bought from the lenders in 2005. The securities swapped a fixed rate of interest on 1.7 billion euros of bonds for a variable rate that was losing the city 298 million euros as of June. Milan is among about 600 Italian municipalities that took out 1,000 derivatives contracts worth 35.5 billion euros in all, the Treasury said.
“Milan is an important case because it can be used as an example by others,” said Alfonso Scarano, who is heading a study into the trades by AIAF, a group representing Italian financial analysts. “This is a unique time for borrowers to shed light on their potential losses and renegotiate contracts” to take advantage of interest rates that have fallen to record lows. AIAF will next week testify before the Italian Senate’s inquiry into the cities’ use of derivatives contracts.
Officials at all four banks declined to comment. In January, JPMorgan filed a lawsuit against the city in London. The bank is seeking to have dispute heard in the U.K., according to two people familiar with the claims.
A spokesman for Milan’s city council declined to comment. A report commissioned by the city last year into the derivatives trades didn’t identify the officials involved in the decision.
The banks reaped about 100 million euros in fees from the transactions, Milan’s financial police said today. Public officials, seeking to cut the cost of their debt and help fund their budgets, turned to the banks to refinance borrowings from the state-owned lender Cassa Depositi e Prestiti.
The 30-year bond carried annual interest of 4.019 percent. With the derivatives, the city swapped the fixed interest rate for a floating rate set at 12-month Euribor. Milan also agreed to repay the principal by annual payments instead of at maturity, according to the city’s report.
The banks and Milan later agreed on so-called interest-rate collars, under which the banks would pay the borrower if Euribor rose above a certain level, the so-called cap, while the borrower would pay the banks if Euribor fell below the so-called floor.
The banks misled municipal officials on the advantages of buying the derivatives, including the impact of the fees they charged on the contracts, the financial police have said. The banks made three times more money from the cap than Milan did from the floor, according to the city’s report.
Local governments often entered into derivative contracts without soliciting bids from competing buyers. In 2007, Milan also sold a credit-default swap, exposing itself to the risk that the Republic of Italy might default, the document shows.
The Milan case is among lawsuits filed by local governments from Germany to the U.S. amid allegations of mis-selling and fraud. Italy’s Senate is leading a review of the use of derivatives among local administrations.
Italian prosecutors can seize assets, subject to judicial approval, to prevent the worsening of the consequences of the crime or prevent further crimes being committed, according to Andrea Giannelli, a researcher at Milan’s Bocconi University.
‘Intimidating and unprecedented’
“Its use in this case is somewhat intimidating and unprecedented,” said Giannelli. “It’s a measure they may be using to accelerate a solution.”
Deutsche Bank, Germany’s largest bank, last year won dismissal of a lawsuit filed by Hagen, Germany, over losses on derivatives that the city purchased from the lender.
The U.S. Justice Department has been investigating for more than two years whether banks and brokers conspired to overcharge local governments on similar swap agreements.
Alabama challenged a so-called swaption deal last year as local governments across the U.S. faced rising bills after derivative trades with Wall Street banks backfired. The Alabama Public School and College Authority filed a lawsuit in October seeking to void a so-called swaption, or option on an interest- rate swap, that it sold to JPMorgan in 2002.
To contact the reporter on this story: Elisa Martinuzzi in Milan at firstname.lastname@example.org
NEW YORK (Dow Jones)--The U.S. banking industry could lose as much as $120 billion from buying back troubled mortgage-backed securities, according to research prepared by J.P. Morgan Chase & Co.
This put-back risk, as it is known, is the biggest mortgage issue facing banks, according to a research report sent to clients Friday by J.P. Morgan fixed-income strategists led by Ed Reardon and John Sim.
In recent weeks, large banks have been caught up in foreclosure-documentation problems that have led some of the nation's biggest mortgage servicers to halt foreclosure proceedings broadly or even nationwide. Media reports and market analysts have "vastly overestimated the significance of many of these factors and the corresponding cost to the industry," the J.P. Morgan note said. "The potential cost to the banking industry of delays in the foreclosure process is likely to be minimal." The report said many of the problems "are process oriented and can be fixed in the near term."
The report said put-back losses for banks, however, could be significant. The report gave a "base" estimate of put-back costs at $55 billion, and said a "stress" level could reach $120 billion in total.
If bondholders can prove that underwriting banks breached bond warranties because, for instance, there were falsehoods on loan applications, leading to an adverse performance of the bond, the banks can be required to buy back the nonperforming mortgages. Proving these accusations in court, the report said, can be difficult.
Put-back losses could range between $10 billion to 25 billion per year, but will likely be spread out over several years, the report said, "owing to the complexity and cost of implementing put-backs, especially in non-agency securitizations."
The report estimates put-back risk at $23 billion to $35 billion from agencies, $40 billion to $80 billion in non-agency mortgages, and $20 billion to $31 billion for second liens and home-equity lines of credit.
Stocks of the biggest U.S. lenders traded higher Monday, taking back some of last week's losses, after Citigroup Inc. (C) reported stronger earnings than expected. Shares in Bank of America Corp. (BAC), the biggest mortgage lender, closed up 3%, at $12.34. Stocks of other big mortgage lenders also rose. J.P Morgan Chase & Co. (JPM) shares gained 2.8%, to $38.20, and Wells Fargo & Co. (WFC) rose 5.5% to $24.87.
Shares tumbled last week as investors sought to understand potential costs of foreclosure moratoriums stemming from "robo-signed" foreclosure documents, in which bank employees signed hundreds of foreclosure documents a day without verifying their contents.
-By Chris Dieterich, Dow Jones Newswires; 212-416-2611; email@example.com
Posted by Eileen at 12:35 PM