Florence Suspends Payments on Swaps Amid Dispute
The City of Florence suspended payments on swaps to UBS AG, Bank of America Corp. and Dexia Crediop SpA amid a dispute over contracts that have led to losses for the Italian municipality.
The city, which was due to pay 9 million euros ($11.9 million) yesterday, gave the banks 30 days to review the agreements, Angelo Falchetti, city finance director, said in an interview. The municipality is using a self-protection clause which enables public administrations to annul contracts without seeking legal recourse, said Falchetti.
Dexia Crediop, UBS and Bank of America this week sued the Italian city in a London court. Dexia filed a claim at London’s High Court on Dec. 6, while UBS and Bank of America filed claims on Dec. 8, court documents show.
Losses on derivatives from Puglia, on the heel of Italy, to Liguria, the region that borders France along the Mediterranean, are prompting local governments to review their arrangements, while lawmakers have proposed rules that limit the use of swaps. An administrative court last month backed the provincial government of Pisa on its decision to annul derivative agreements with Dexia.
Interest Rate Swaps
Dexia is seeking confirmation that the contracts with Florence are valid and is willing to work with the city to clarify the transactions, the firm said in an e-mailed statement. UBS officials declined to comment. John McIvor, a spokesman for Bank of America in London, didn’t return calls and an e-mail seeking comment.
Florence has interest rate swaps on about 200 million euros of debt, and has been losing money since agreeing to them in 2005, Falchetti said.
“Several problems have emerged on the contracts,” he said. “We’re waiting to hear back from the banks now.”
UBS and Bank of America in July filed separate claims against the region of Lombardy and in August Bank of America sued the city of Verona in London.
The cases are: Dexia Crediop S.p.A. v. Comune di Firenze, 10-1455, High Court of Justice Queens Bench Division, Commercial Court; UBS Limited v. Comune di Firenze, 10-1471, High Court of Justice Queens Bench Division; Merrill Lynch International Bank Limited v. Comune di Firenze, 10-1464, High Court of Justice Queens Bench Division.
To contact the reporters on this story: Lindsay Fortado in London at lfortado@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net
To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net
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