MILAN, March 7 (Reuters) - An Italian appeals court will decide on Friday whether to uphold a ruling that found four international banks guilty of fraud and mis-selling of derivatives to the city of Milan, in a case that highlighted the opaque finances of many Italian municipalities.
The four banks - Depfa, Deutsche Bank, JPMorgan and UBS - have appealed against a landmark verdict from December 2012 ordering the seizure of 89 million euros ($123 million) and fines for each of 1 million euros.
Nine bank employees were handed suspended jail sentences of up to eight months. The banks deny any wrongdoing.
Milan prosecutor Piero De Petris last month asked for the individual fines and the seizure to be upheld with only a small reduction for JPMorgan. He also asked for jail sentences of around six months for four of the nine bank employees.
The case relates to a swap contract signed by the city of Milan council when it issued a 1.68 billion euro, 30-year bond in 2005.
The four banks were accused of making 100 million euros in illicit profit and lying about the risks linked to the deal.
The trial was the first of its kind in Italy, where hundreds of local governments have entered opaque and risky derivatives deals that turned sour. Many of them have then taken lenders to court to solve their disputes.
Italy's 2014 budget law has rendered permanent a ban the Treasury introduced in 2009 preventing local authorities from signing new derivatives contracts, though they can still restructure old deals.
In June, 2013 a total of 275 local governments held 536 derivatives contracts on underlying liabilities worth 27.5 billion euros, Treasury data show. In 2009 the number of contracts in place was roughly double.