April 19, 2018 / 8:30 AM / a month ago

Morgan Stanley to seek new court for Italian derivatives case -sources

ROME, April 19 (Reuters) - Morgan Stanley on Thursday will seek to have a suit against it for 2.7 billion euros ($3.34 billion) in damages thrown out of an Italian administrative court, three sources close to the case told Reuters.

The U.S. investment bank maintains that derivatives contracts signed with Italy’s Treasury that led to losses should be scrutinised by a civil court, not by the Court of Accounts, which rules on abuses of public funds, the sources said ahead of the first hearing in Rome.

If the Court of Accounts judge accepts the Morgan Stanley claim, the state would then have three months to bring its case before a new tribunal.

The Morgan Stanley derivative transactions were made between 1995 and 2005 and were terminated in December 2011 and January 2012, Morgan Stanley said in a securities filing.

The interest-rate derivatives were meant as a form of insurance for the Italian government, one of the most heavily indebted in Europe, in the event that market rates rose.

Instead, after the 2008-2009 global financial crisis, interest rates plunged, and the state incurred large losses on its derivative positions as it was able to borrow more cheaply in the bond markets.

The Court of Accounts prosecutors argue that some contracts negotiated with Morgan Stanley were speculative in nature and contained termination clauses that were overly advantageous to the bank.

Morgan Stanley says the claim is groundless, and in August, 2016, the bank rejected a settlement proposal from an Italian prosecutor for a one-off payment, a securities filing showed.

The Court of Accounts will also hear claims worth 1.18 billion euros against two senior officials - former public debt chief Maria Cannata and Treasury chief administrator Vincenzo La Via - and former finance ministers Domenico Siniscalco and Vittorio Grilli.

A Treasury spokesman said in July that it had full faith in the work undertaken by its managers and trusted that the court could clear up these matters.

Siniscalco and Grilli declined to comment.

Compensation orders by the Court of Accounts can be appealed. Once confirmed, they are legally enforceable through asset seizures, if necessary.

$1 = 0.8080 euros Reporting by Domenico Lusi; writing by Giselda Vagnoni; editing by Steve Scherer and Jason Neely

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