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Banks Don’t Provide Swap Costs, JPMorgan Executive Tells Court

Sept. 21 (Bloomberg) -- Banks don’t typically disclose what they’re charging municipalities to arrange derivatives, a practice that isn’t required, Antonia Creanza, a JPMorgan Chase & Co. banker on trial for fraud, told a Milan court.

“Every time I sold a derivative to a public administration, even before getting to the details, the first question was always, ‘How does the bank make money?’” Creanza told the court today under questioning by her lawyer. “I would explain that we would retain a margin. Never has a legal adviser told me, ‘Look you need to detail the gross margin,’” she said.

JPMorgan, UBS AG, Deutsche Bank AG and Depfa Bank Plc are on trial on charges of mis-selling swaps to Milan, derivatives that adjusted payments on a 1.7 billion-euro ($2.4 billion) bond offering from 2005. Prosecutor Alfredo Robledo said the banks misled Milan by telling the city it could save about 55 million euros with the bond sale and a series of swaps. Robledo says the banks earned 101 million euros in hidden fees. The banks deny the charges.

After selling swaps to municipalities for UniCredit SpA and a unit of Dexia SA, Creanza told the court she joined JPMorgan’s interest-rate derivatives team in 2004, then headed by Antonio Polverino. JPMorgan was one many banks that courted Milan, she said.

From December 2004 to March 2005, before Milan’s public tender for the financing, JPMorgan discussed various financing scenarios with the city, Creanza told the court.

Fee Reduced

JPMorgan bid to manage the bond offering for a commission of 7 basis points of the total amount raised, Creanza said. The bank was surprised by the city’s request to cut its fee to 1 basis point, matching Depfa’s winning bid, Creanza said.

The eventual decision to match the lower fee was taken at the bank’s highest levels, including Tony Best, then the European head of sales, and Fawzi Kyriakos-Saad, then head of European credit and rates, she said. The bank cut its fee for reputational reasons because the deal was then the biggest of its kind in Europe, she said.

At the bank “we discussed ways of doing other business for the city, how to create other opportunities, the opportunity that there might be a swap, for example,” Creanza said. The 1 basis-point fee covered only the bond underwriting, she said.

Creanza, 42, said the banks, which the prosecutor says breached rules they operate under as U.K.-registered advisers, weren’t Milan’s advisers and that allegation hasn’t been proven in court.

The banks did explain to the city the disadvantages of getting competing quotes for the swaps from firms not involved in placing the bond, she said. Seeking external bids would have exposed the city to market movements because the process would have taken about 75 minutes from the pricing of the bond to the pricing of the swap, Creanza said.

The trial continues.

To contact the reporter on this story: Elisa Martinuzzi in Milan at

To contact the editor responsible for this story: Edward Evans at

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