MILAN (Reuters) - An Italian judge on Wednesday ordered four foreign banks and 13 people to stand trial over a complex derivatives deal involving Milan in a criminal test case for cities facing heavy losses from derivatives deals.
UBS (UBSN.VX)(UBS.N), Deutsche Bank (DBKGn.DE), Germany's Depfa and JPMorgan Chase & Co (JPM.N) were ordered to stand trial for aggravated fraud over a derivatives swap on a 1.68 billion euro (1.5 billion pounds) bond issued by Milan.
The judge also ordered 11 bank officials and two former Milan city employees to stand trial on the same charges arising from the 30-year bond issued in 2005.
The trial is to start on May 6 and would be a litmus test for hundreds of local Italian entities that rushed to sign up for sophisticated financial deals, ranging from regional governments down to a local theatre group.
"This is a step in the process. It's a delicate stage, but a stage," prosecutor Alfredo Robledo told reporters.
He said the Milan case would be the first criminal case involving derivatives sold to a local administration. In an administrative case, Britain closed its derivatives market in the early 1990s when the House of Lords held that interest rate contracts entered by a London council were unenforceable.
The Milan charges stem from a derivatives swap between the city and the banks over the 2005 bond, the biggest issued by an Italian city.
The derivatives exchanged a fixed rate of interest on the bonds for a variable rate. Continued...
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