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Nomura Sues Sicily in London Amid Region’s Losses on Swaps

Nomura Holdings Inc. (8604), the region of Sicily’s biggest derivative counterparty, sued the local administration amid the municipality’s growing losses on swaps.

Nomura filed a claim at the High Court in London on Sept. 12, court documents show. Officials for Nomura declined to comment. Officials at the region of Sicily didn’t have an immediate comment.

Sicily, Italy’s poorest region, faces increasing losses on about 860 million euros ($1.1 billion) of derivatives with banks led by Bank of America Corp. (BAC), Deutsche Bank AG (DBK) and Nomura. Future losses will wipe out earlier gains, Italy’s state auditor said in a June 29 report. The regulator urged Sicily to “seek protection” against losses on the contracts.

A liquidity shortage forced the Italian government to disburse 400 million euros of funds to the region in July after Prime Minister Mario Monti expressed “serious concerns about the possibility Sicily could default.” Sicily’s 5.3 billion euros of debt increased last year as it hired staff, and mark- to-market losses on swaps may add to future obligations.

Sicily last year began talks with its derivatives banks to “simplify the contractual clauses and in an effort to maximize savings” and may restructure the contracts, the region’s finance department said on Feb. 19. The local government said then that it expected talks to be completed by the end of the year, though it didn’t give details about the contracts.

The region paid about 41.1 million euros on rate swaps in 2011, eroding the local government’s gains since 2005 to about 15 million euros, state auditor data show. The so-called mark- to-market on the swaps was about 359 million euros in the banks’ favor as of April 30, the national accountant said.

Sicily’s biggest derivatives counterparty is Nomura, followed by Bank of America and Deutsche Bank, according to the region’s filings published on its website.

To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net; Lindsay Fortado in London at lfortado@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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