* Case could set precedent for other local authorities
* May be "bit of a tsunami" for financial system -lawyer
* Four banks ordered to hand back 90 million euros and fined
* Verdict comes as UBS hit with $1.5 bln Libor penalty
By Giulio Piovaccari and Silvia Aloisi
MILAN, Dec 19 An Italian court on Wednesday
found Deutsche Bank, Depfa Bank, JP Morgan
and UBS guilty of fraud for mis-selling derivatives to
Milan that could set a precedent for hundreds of local
governments to pursue.
The court ordered the seizure of just under 90 million euros
from the lenders which were each fined 1 million euros ($1.3
million). Nine bank employees were handed suspended jail
sentences of up to eight months.
The verdict, coming on the same day UBS was fined $1.5
billion for manipulating global interest rates, related 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.
"This is an historic sentence because it has recognised the
principle that banks' dealings with the public administration
must be transparent," prosecutor Alfredo Robledo told reporters
after the verdict.
"Italy was like a lawless jungle," he said, adding that in
Britain and other countries similar derivative contracts with
local governments had long been banned.
Deutsche Bank, JP Morgan and UBS said in separate statements
they had done nothing wrong and would appeal.
"The evidence at the trial demonstrated conclusively that
the individuals behaved entirely honestly and appropriately
throughout and that the transactions complied with Italian and
English law," the U.S. bank said.
The trial was the first of its kind in Italy, where about
600 local governments bought derivative products worth 36
billion euros, many of which turned sour when the financial
crisis started to bite.
Derivatives mis-selling is one of a number of banking
scandals that authorities are investigating following the global
The probe over the rigging of Libor interest rates has
resulted in big fines for UBS and Britain's Barclays,
while Deutsche Bank is the subject of a number of probes
including suspected tax evasion over trade in carbon permits.
"This is a very dangerous verdict for the banks, which could
have an impact for dozens of other legal battles involving local
administrations," said Tommaso Iaquinta, a lawyer who has
followed several similar cases.
"This is just the first step of the judicial process but it
could be a bit of a tsunami for the whole system."
According to the prosecutors, the swap contract at the
centre of the trial appeared to offer the Milan city council an
attractive interest rate but turned out to carry much higher
costs, paid for by taxpayers, than it had anticipated.
Prosecutors also said the banks involved were both advisers
to the city of Milan and counterparties in the derivative deal.
Under the seizure order, JP Morgan will have to hand back 24.8
million euros, Deutsche Bank 24.3 million euros, Depfa just
under 24 million euros and UBS 16.6 million euros.
Bank of Italy data shows Italian cities face nearly 4
billion euros of potential losses from derivatives contracts,
many of which were signed by people lacking the expertise to
fully understand them.