UK-based banks accused of massive mis-selling in Italy
Several UK-based investment banks have been accused of mis-selling financial products to Italian cities and regions.
Nomura, UBS and Deutsche Bank are among those accused by Italian prosecutors of mis-selling derivatives in deals worth 35bn euros (£28bn).
The banks deny wrongdoing, but refused to comment further because the matter is now before the Italian courts.
BBC Newsnight discovered that London’s financial watchdog was made aware of the mis-selling, but failed to act.
Now those Swap derivatives look as if they could further damage the entire Italian economy – the third largest in the eurozone.
Sicily has already needed a 400m-euro bailout from the federal government in Rome, which itself may soon need aid from its eurozone partners to stay financially afloat.
On Monday, official figures revealed that the Italian economy, which has contracted for the past four quarters, shrank by 0.8% between April and June, slightly more than previously estimated.
Between 1997 and 2007, dozens of Italian cities and regions borrowed 111bn euros from London-based investment banks – the repayments of which were funded by a type of derivative called a Swap
Although these Swap deals appeared to offer attractive interest rates, in reality the regions had unwittingly placed their own taxpayers on the hook for complex derivative bets which would end up costing them far more than expected.
“The banks didn’t provide sufficient information to local authorities on the risk they were taking,” according to Claudi Gatti, an investigative journalist with Il Sole 24 Ore who unearthed the mis-selling.
“So the authorities felt they were getting money for free. But the banks were making huge profits. They were encouraging the authorities to take major risks so that they [the banks] could make tens of millions of euros of profits for each contract.”
do you get the feeling that the gloves are off all over the world and they cant wait to dob each other in and beat each other up?