Italy set to bail out bank after huge derivatives losses


Board members of the Italian bank Italease were in emergency session last night amid reports that the central bank may step in following huge losses on the derivatives markets - reports The Daily Telegraph.

Italease shares fell 10.5% on the Milan bourse after the financial daily Il Sole reported that the Bank of Italy intended to install its own interim management after conducting a review of Italease\'s disastrous bets on leveraged credit futures. The company, which was worth €2 billion ($2.76 billion, £1.34 billion) in April, has since lost three-quarters of its value. The bank has sent out margin calls to 2,200 clients in an attempt to claw back €610 million ($842.9 million) paid to counterparties to stave off disaster after losses suddenly began to spiral out of control.

Pierantonio Arrighi, the bank\'s spokesman, said all the bets related to Euribor interest rate contracts. It appears that the derivatives team expected a slower pace of rate rises by the European Central Bank, though it remains a mystery how this could have led to near catastrophic losses in weeks. The debacle is a textbook example of over-enthusiastic finance departments jumping into the $410,000 billion (£275,000 billion) derivative markets to generate extra yield without understanding the full risks. A low-margin leasing bank, Italease became enthralled by the lure of apparently easy profits in futures contracts - which jumped from zero in 2003 to make up a quarter of the bank\'s total income last year. “These derivatives were very complex and suddenly turned against us. They started moving in a non-linear way, so the losses were rising exponentially,” Arrighi told The Daily Telegraph this month. Il Sole said the Bank of Italy\'s audit contained “very harsh” criticisms.

Most clients agreed to take out the positions in the belief that they were buying hedges to protect their business against rate rises, only to find that they were ensnared by elaborate forward contracts. The bank had been in the process of raising €600 million in a public offering underwritten by Mediobanca, but this may now be in doubt. Italease had €120 million ($165.8 million) of derivatives positions still open, it said. (

HBLF Recognizes Diverse and Fair Workplaces Analysis

HBLF Recognizes Diverse and Fair Workplaces

EC to Propose Opening Excessive Deficit Procedure Against Hu... EU

EC to Propose Opening Excessive Deficit Procedure Against Hu...

German, Austrian Travelers Spend Most Money in Hungary Automotive

German, Austrian Travelers Spend Most Money in Hungary

Int'l Travelers to Europe Prioritize Safety, Quality This Su... Tourism

Int'l Travelers to Europe Prioritize Safety, Quality This Su...


Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.