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 Ouch: Italy Said to Pay Morgan Stanley $3.4 Billion

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Ouch: Italy Said to Pay Morgan Stanley $3.4 Billion Vide
PostSubject: Ouch: Italy Said to Pay Morgan Stanley $3.4 Billion   Ouch: Italy Said to Pay Morgan Stanley $3.4 Billion Icon_minitimeFri Mar 16, 2012 5:28 am
When Morgan Stanley (MS) said in January it had cut its “net exposure” to Italy by $3.4 billion, it didn’t tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates.

Italy, the second-most indebted nation in the European Union, paid the money to unwind derivative contracts from the 1990s that had backfired, said a person with direct knowledge of the Treasury’s payment. It was cheaper for Italy to cancel the transactions rather than to renew, said the person, who declined to be identified because the terms were private.

Ouch: Italy Said to Pay Morgan Stanley $3.4 Billion Itg4gsvyp45y



The cost, equal to half the amount to be raised by Italy’s sales tax increase this year, underscores the risk derivatives countries use to reduce borrowing costs and guard against swings in interest rates and currencies can sour and generate losses for taxpayers. Italy, with record debt of $2.5 trillion, has lost more than $31 billion on its derivatives at current market values, according to data compiled by the Bloomberg Brief Risk newsletter from regulatory filings.

“These losses demonstrate the speculative nature of these deals and the supremacy of finance over government,” said Italian senator Elio Lannutti, chairman of the consumer group Adusbef.

Morgan Stanley said in a Jan. 19 filing with the U.S. Securities and Exchange Commission that it “executed certain derivatives restructuring amendments which settled on January 3, 2012” and reduced its Italian exposure by $3.4 billion.

http://www.bloomberg.com/news/2012-03-16/italy-said-to-pay-morgan-stanley-3-4-billion-to-exit-derivative.html
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Ouch: Italy Said to Pay Morgan Stanley $3.4 Billion

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