MILAN — A judge in Milan ordered banks JPMorgan, Deutsche Bank, Depfa, UBS and 13 people to stand trial for alleged fraud in the sale of derivative instruments, the prosecutor told AFP on Wednesday.
“JPMorgan, Depfa, Deutsche Bank and UBS have been ordered to stand trial for fraud along with 11 of their managers and two former Milan city officials,” said Alfredo Robledo, a prosecutor at the Milan court.
The four banks allegedly hid the risks in the derivative financial products they sold to the city of Milan while restructuring its debt, promising that the products would save the city money.
All the banks involved deny any wrongdoing.
“We are… confident that the strength of our legal position will be demonstrated through the judicial process,” JP Morgan said.
“The JP Morgan employees involved in the transactions acted with the highest degree of professionalism and entirely appropriately,” it said.
For its part, UBS said: “No illicit profit was earned by the banks, since the intermediation costs applied were fully legitimate and were not hidden from the City.”
Deutsche Bank said it was confident its employees involved in the transactions acted with integrity.
And a spokeswoman for Depfa said the German bank was convinced it had not violated any law or regulation.
The trial is set to open on May 6 in Milan, said Robledo, who has led the investigation since 2007.
The case revolves around a 1.7-billion-euro bond issue by the city of Milan on which the banks sold derivatives.
In 2009, the city of Milan estimated its potential losses at about 300 million euros, but it will be impossible to calculate total losses until the debt expires in 2035.
The banks made about 100 million euros (137 million dollars) from the sales, the prosecution says.
“The judge confirmed the plausibility of the accusation. It’s a preliminary positive judgement,” Robledo said.
Italy is investigating other operations of this kind in other public administrations of cities, provinces and regions.
According to finance ministry figures, the derivative products make up about a third of the debt carried by Italy’s public entities, totalling some 35.5 billion euros.
Italy’s public auditor said in February that derivative products taken out by public entities were a ticking time bomb and would weigh on public finances for the next few decades.
The use of derivative products by local governments, authorised in 2002, was banned in 2008.
Dow Jones Newswires contributed to this report