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JPMorgan, UBS Tricked Milan in Swaps Case, Judge Says

Feb. 4 (Bloomberg) -- Deutsche Bank AG, JPMorgan Chase & Co., UBS AG and Depfa Bank Plc took advantage of the city of Milan, tricking the municipality into agreeing to a financing deal that didn’t meet its objective of cutting borrowing costs, wrote the judge who convicted the four banks in the fraud case.

The banks should have informed the municipality of the charges related to the derivatives that were part of the transactions, Judge Oscar Magi in Milan wrote today in explaining the convictions he handed down in December.

The city, which “wasn’t up to” carrying out its own analysis of the economic advantage of the financing package, needed protection and clear information, Magi said. “Information deficiencies manifested themselves and caused a grave asymmetry of information,” he wrote.

The banks, whose employees involved in the case were registered with Britain’s Financial Services Authority, violated U.K. rules by failing to inform the city that it was a counterparty to the lenders rather than a customer. The banks acted as arrangers of a bond sale, or advisers to the municipality, as well as its counterparties, the judge wrote.

When contacted by Bloomberg News, the banks said they disagree with the verdict and plan to appeal, reiterating their stance following the December ruling. Chris Hamilton, a spokesman for the FSA in London, declined to immediately comment.

Magi in December ordered that about 90 million euros ($122 million) of assets be seized from the banks, the amount of their profit, and that they pay sanctions of 1 million euros each. He also convicted nine bankers of fraud and suspended their sentences.

The judge said Italian securities rules indicate that there is an obligation to disclose the cost of derivatives to the client, a duty that in this case was reinforced by the multiple roles played by the banks. Under FSA rules, banks are required to shield customers from conflicts of interest and failed to inform Milan of the “obvious” conflict, Magi wrote.

The contracts, given the amounts involved, are likely to have been vetted by the most senior managers of the banks, according to Magi. The bankers then “executed” directives they were given, he wrote.

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

To contact the editors responsible for this story: Frank Connelly at; Edward Evans at

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