Energy Efficiency

Is it pride or fear of ridicule that prevents local government authorities and many fund managers from releasing their poor investment strategies, or is it more that inducements paid to them to make recommendations will be revealed; how many banks in Australia – like NAB – have dealings with and apply pressure through law firms with more than juts a vested interest in these sorts of dealings ?

In Italy they have stopped being nice and putting on appearances; Italy’s financial police are seizing 73.3 million Euros of assets from Bank of America Corp. and a unit of Dexia SA as part of a probe into an alleged derivatives fraud in the region of Apulia.

The Police are investigating losses on *derivatives linked to the sale of 870 million Euros of bonds sold by the regional government in 2003 and 2004, according to an e-mail from the prosecutor’s office in Bari. The banks misled the municipality, located in the heel of Italy, on the economic advantages of the transaction and concealed their fees, the prosecutor said.

The region, also known as Puglia, joins more than 519 Italian municipalities that face 990 million Euros in derivatives losses according to data compiled by the Bank of Italy. In Milan, prosecutors seized assets from four banks including JPMorgan Chase & Co. and UBS AG in April and requested they stand trial for alleged fraud. Hearings started this month.

Dario Loiacono (a banking lawyer in Milan not involved in the case) said ‘it’s the result of the unavoidable asymmetry of information between the banks and the municipal borrowers’. Police are sequestering a further 30 million Euros that the municipality had set to place in a fund managed by the banks on Feb. 6; the magistrate also asked that Charlotte, North Carolina-based Bank of America be stopped from doing business with Italian municipalities for two years. A hearing is slated for next month.

Merrill Lynch (bought by Bank of America in January 2009) managed the bond sales for Apulia in 2003 and 2004; the bank didn’t provide the municipality with appropriate information on the financing, said the prosecutor and officials at the municipality didn’t speak English yet the contracts weren’t translated into Italian.  Merrill Lynch also recommended that Apulia seek advice from an international law firm, without disclosing that Merrill itself had a long-standing business relationship with the law firm, the prosecutor said.

Prosecutors allege that ‘banks arranged swaps’ and created a fund that invests money the region set aside to repay the bonds in 2023, they ‘misled the region’ about the economic advantages of the transaction and ’skewed the swaps’ to their advantage ‘to hide fees’.

* Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in interest rates or weather.