For Iris Volante, who chairs Cassino’s assembly finance committee, the bankers who share responsibility for peddling the derivatives should pay with their jobs. She, like Occupy Wall Street protesters around the world, is demanding an overhaul of the financial system to stop history from repeating itself.
“Heads rolling is the least we would expect,” Volante, a 57-year-old gynecologist who also has worked for the city for more than a decade, said in a Cassino cafe. “When people’s attitude is to cheat others, new rules are needed to prevent it happening again.”
Cassino, whose government office overlooks a U.S. tank and other war relics in the town’s central square, plans to cut funding for its day-care center and may ask families to pay several hundred euros a month per child after running out of other cost-cutting measures, Volante said. The town already has reduced staff to about 250 employees from about 450 by not replacing those who left or retired, she said.
While the New York-based bank led by chief executive Jamie Dimon has no retail branches in Italy, it didn’t hesitate to sell complex swaps to municipalities over the past decade. In Milan, J.P. Morgan and its employees are on trial, along with Frankfurt-based Deutsche Bank, Germany’s Depfa Bank and Switzerland’s UBS, for allegedly tricking the city into buying the contracts in 2005. The banks deny any wrongdoing.
Across Italy, cities faced with shrinking income and rising expenses bought swaps from J.P. Morgan, the largest U.S. bank by assets, and other lenders to cut short-term interest costs, putting them at risk of paying more in the long run. Cassino bought a $28.7 million contract from New York-based Bear Stearns, acquired by J.P. Morgan in 2008. The contract switched interest payments on the town’s debt from a fixed rate to a variable one. The rate, a record low at the time the contract was signed in 2003, soared over subsequent years.
About 300 municipalities, from the toe of Italy’s boot to the Alps, were losing a total of 912 million euros on such derivatives as of March, Bank of Italy data show.
Brian Marchiony, a spokesman for J.P. Morgan in London, declined to comment.
From Alps to Appalachians
Local governments and regulators in Germany and the United States also have brought cases against banks, including J.P. Morgan, over derivatives contracts.
The German city of Pforzheim sued J.P. Morgan a year ago over 56 million euros of losses on interest-rate swaps. A hearing at the Frankfurt Regional Court is scheduled Jan. 16. Marchiony declined to comment on the case.
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