JPMorgan Chase & Co. sued state-owned Portuguese companies running the Lisbon and Oporto metro rail services, as well as the country’s strategic oil reserves, to enforce derivative contracts worth at least 455 million euros ($587 million).
JPMorgan filed the lawsuits in London on April 26, the same day Portugal made a deal with other banks to reduce its 3 billion-euro exposure to derivatives entered into by state-owned firms. The government failed to reach an agreement with JPMorgan and Banco Santander SA’s Portuguese unit, and said it would sue to defend its interests.
“We were forced to take protective measures in the English courts” following the April announcement by Portugal, JPMorgan spokesman Brian Marchiony said in an e-mail. The New York-based bank remains open to negotiations and the contracts aren’t in default, he said.
Banks are turning to U.K. courts to resolve swaps disputes with local governments and state-owned companies that say they lost money on complex derivatives. More than half a dozen Italian municipalities are embroiled in legal disputes with investment banks in London.
Maria Luis Albuquerque, Portugal’s secretary of state for treasury and finance, described the country’s hedging contracts as “toxic” with “elevated risks,” when she announced the April deal. An official at Portugal’s finance ministry declined to comment.
Santander’s Portugal-based unit also sued the Oporto and Lisbon metro and bus companies in London on May 10. Peter Greiff, a Santander spokesman in Madrid, didn’t immediately return a phone call seeking comment.
Metropolitano de Lisboa had at least 455 million euros of swap contracts with the JPMorgan at the end of 2011, as measured by notional value, according to the company’s annual report. The disclosed JPMorgan contracts had a negative value of 221 million euros, Metropolitano de Lisboa said.
JPMorgan’s Marchiony said in an e-mailed statement the figures weren’t accurate and declined to comment further. A Metro de Lisboa spokesman declined to comment beyond the company’s filings.
Metro Porto had 120 million euros of outstanding loans with JPMorgan at the end of 2011 according to its annual report, which didn’t disclose details of derivatives held with the bank. The Strategic Oil Reserve Fund didn’t disclose details of its derivative counterparties.
The cases are: JP Morgan Securities PLC v. Metropolitano de Lisboa EP, High Court of Justice, Queen’s Bench Division, Commercial Court, 13-607; JP Morgan Chase Bank NA v. Entidade Gestora De Reservas Estrategicas De Produtos, High Court of Justice, Queen’s Bench Division, Commercial Court, 13-606; and JP Morgan Chase Bank NA & Anr v. Metro Do Porto SA, High Court of Justice, Queen’s Bench Division, Commercial Court, 13-603.