Italy says has derivatives portfolio of 160 bln euros

domenica 18 marzo 2012 02:07

ROME, March 17 (Reuters) - The Italian Treasury holds derivatives contracts to hedge some 160 billion euros, or almost 10 percent of state bonds in circulation, the government has told the Chamber of Deputies.

Education Undersecretary Marco Rossi Doria made the announcement in answer to a parliamentary question after U.S. investment bank Morgan Stanley said it had received 3.4 billion euros to close derivatives contracts with Italy's Treasury.

Morgan Stanley's announcement sparked controversy in Italy, with opposition lawmakers noting the sum paid was around half of what the government aims to garner this year from a hike in value added tax as part of its austerity measures.

In answers recorded on the Chamber of Deputies website, Rossi Doria said the Treasury had actually paid Morgan Stanley 2.567 billion euros.

He added that the state still has derivatives contracts worth some 160 billion euros, or nearly 10 percent of the 1.624 trillion euros of Italian bonds in circulation.

He said the contracts with Morgan Stanley, made up of two interest rate swaps and two swap options, were closed under an "Additional Termination Event" clause.

These co-called break clauses are rare in contracts involving sovereigns, and the clause was only present in the Treasury's contracts with Morgan Stanley, Rossi Doria said.

He did not account for the discrepancy between the 2.567 billion euros he said the Treasury had paid to Morgan Stanley and the 3.4 billion euros referred to by the bank in its report to the U.S. Securities and Exchange Commission.

Italy's use of derivatives to guarantee its public debt yielded a loss of 2 billion euros in 2011 in the form of higher interest payments and 4 billion euros in 2007-2010, official figures show.