JP MORGAN CHASE, the US investment bank, yesterday held out the prospect of an out-of-court settlement with Poste Italiane yesterday after the state-owned post office filed a lawsuit against the bank seeking to recover a €40 million (£27 million) loss on a complex derivative deal.
The huge loss stems from a €250 million interest rate swap contract arranged by JP Morgan’s European derivatives team in July 2003 and agreed by Massimo Catasta, Poste’s former finance director.
In a writ filed earlier this week, the Italian group alleges the bank knew that Signor Catasta, who has since been dismissed, was exceeding his authority by entering the deal. It is understood that Signor Catasta did not have a mandate to hedge against currency and interest rates using contracts exceeding €50 million.
The losses were uncovered during an audit of Poste by PricewaterhouseCoopers earlier this year, when the auditor was asked to implement new hedge accounting rules. According to Risk magazine, the swap contract that led to the losses was entered into to restructure earlier transactions with JP Morgan that had cost Poste a further €50 million.
JP Morgan’s Italian derivatives business, based in London and known within the giant investment bank as Team Italia because of the multimilliondollar profits that the unit has generated, was also involved in a derivatives deal with Gruppo Editoriale L’Expresso that led to significant losses for the publisher of Italy’s La Republica newspaper last year.
Advertisement
It not uncommon for banks and clients to share losses if a derivatives deal sours, as banks are keen to continue often lucrative relationships.
A spokesman for JP Morgan Chase said: “We are reviewing the writ which has just been sent to us. We have no comment at this time.”
Poste Italiane could not be reached for comment.
The lawsuit is likey to embarrass JP Morgan Chase, which is understood to be in talks with the Italian Government over plans to reform Cassa Depositi e Prestiti, the Rome-based public financing body, which has a 35 per cent stake in Poste.
The bank is also involved in a High Court dispute with WestLB over a $165 million derivative contract that turned sour after the collapse of Enron.