Monti Says Italy Seeks to Set Good Example on Swaps Transparency
February 08, 2012, 4:02 AM ESTBy Lorenzo Totaro and Elisa Martinuzzi
(See {EXT4 <GO>} for more on the European debt crisis.)
Feb. 6 (Bloomberg) -- Prime Minister Mario Monti said Italy wants to set a “good example” by being as transparent as possible on its derivative contracts with banks.
On “the transparency of swaps,” Italy “seeks to keep pace” with “the best practices,” Monti told reporters today in Rome after holding talks with Angel Gurria, secretary general of the Organization for Economic Cooperation and Development. “Italy tries to provide a good example.”
Morgan Stanley, the sixth-biggest U.S. bank by assets, said last month that it took a $600 million gain and cut its risk to so-called peripheral European countries including Italy by more than half by restructuring a derivatives deal. Italy, holder of the euro region’s second-biggest debt, earned 8.1 billion euros ($10.6 billion) from interest-rate and currency-swap operations in the decade through 2008, according to Eurostat, the European Union’s statistics office.
“I am not able right now to say what’s the comparative framework of transparency in such operations followed by each country’s Treasury,” said Monti, who is also finance minister and a former adviser to Goldman Sachs Group Inc. Monti said he may “look deeper into the issue.”
The government estimates Italy will have a budget surplus before interest payments at the end of 2011 and debt of about 120 percent of output, the euro region’s second biggest after Greece. Italian 10-year bonds rose last week for a fourth week as optimism that extra funds provided by the European Central Bank are helping contain the debt crisis spurred demand for the region’s assets. The 10-year yield fell seven basis points to 5.63 percent as of 4:50 p.m. Rome time.
Greek Swaps
Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in interest rates or weather. Interest-rate and currency swaps are derivatives used to hedge against sudden changes in rates and excessive exchange-rate volatility.
The ECB asked the EU’s General Court in May to dismiss a lawsuit filed by Bloomberg News seeking disclosure of documents showing how Greece used derivatives to hide loans and triggered the region’s sovereign debt crisis. Releasing the papers could damage the commercial interests of the ECB’s counterparties, hurt the region’s banks and markets, and undermine the economic policy of Greece and the EU, the central bank said.
Germany, Italy, Poland and Belgium, like Greece, used derivatives to manage fiscal deficits, the head of the EU’s statistics office said at a hearing in parliament in April 2010. “There are other member states who have notified swaps in their debt reporting” in addition to Greece, Walter Radermacher, director general of the Luxembourg-based Eurostat, told EU lawmakers in Brussels. “Italy, Poland, Belgium and Germany, and Greece” notified Eurostat on the use of swaps, he said.
Morgan’s Exposure
Morgan Stanley lowered the net counterparty exposure related to Italian sovereigns, Morgan Stanley Chief Financial Officer Ruth Porat said in a Jan. 19 interview.
Morgan Stanley, the sixth-biggest U.S. bank by assets, had $6.4 billion of net exposure including unfunded lending to the five peripheral countries -- Greece, Ireland, Italy, Portugal and Spain -- including $4.9 billion to Italy, as of Dec. 31, according to a disclosure on its website. After the restructuring settled on Jan. 3, those amounts dropped to $3.1 billion and $1.5 billion, respectively.
Concern that Europe’s debt crisis would spark bank losses contributed to a 41 percent tumble for Morgan Stanley’s shares in the third quarter.
--Editors: Jeffrey Donovan, Eddie Buckle
To contact the reporters on this story: Lorenzo Totaro in Rome at ltotaro@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net;
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Edward Evans at eevans3@bloomberg.net;
