Banks convicted in Italy over mis-selling An Italian court has convicted Deutsche Bank, JPMorgan, UBS and Dublin-based Depfa Bank of mis-selling derivatives to the city of Milan and ordered them to pay €1m each in damages, in a case with implications for hundreds of local authorities facing losses from complex financial transactions. In a trial that began two years ago, the Milan court ruled that the four banks had committed aggravated fraud in the sale of a €1.8bn bond and swap financing transaction dating from 2005, and made €100m profit at the city's expense. It also convicted nine bankers of fraud related to the derivatives transactions, handing them suspended sentences of between six months and eight and a half months, and demanded they pay €50,000 each to the Italian consumers" association. The banks had repeatedly said their employees acted properly and that they would appeal against the ruling. Deutsche Bank, in a statement, said it was confident of a positive outcome. Alfredo Robledo, the prosecuting lawyer, said it was a historic outcome. "The sentence has recognised the fundamental principle that banks must be transparent when dealing with the public," he told reporters. The Milan prosecutor had argued that the city council officials were not made aware of the complexity of the transactions. Lawyers say the Milan ruling, the first criminal trial of its kind in Italy, could potentially lead the way to dozens of similar cases being lodged in Italy as many local authorities struggle to repay structured loans that turned sour in the wake of the financial crisis. Between 2001 and 2008, 525 Italian local authorities entered into almost 1,000 interest-rate swaps with an aggregate value of €35bn, according to Italy's audit office and the central bank. This equates to almost a third of all the debt owned by Italy's regions, provinces and municipalities. Local authorities were attracted to the swaps because they saw them as an opportunity to borrow at rates lower than prevailing market rates. They would swap their existing fixed-rate lending for a variable rate with the investment banks. In a period of low rates, when many of the deals were struck, this meant local authorities on a variable rate could find their borrowing shrank. However, as interest rates rose, local authorities would find themselves on the losing side of their bet with the banks as the amount they owed increased. The four banks in the Milan case had already settled a separate civil case with the city government in March and agreed to unwind the swaps. In return, the Milan municipality dropped a civil suit against the banks and withdrew as a plaintiff from the criminal case. Additional reporting by James Shotter in Zürich and James Wilson in Frankfurt