Dexia faces fraud charges over ‘hidden costs’ in swaps deal

Italian fraud trial could spell trouble for other banks providing municipal swaps contracts

In late 2002, Graziella De Castelli, the Italian city of Prato’s chief accountant, entered into an €83 million ($91 million) notional interest rate swap with the local subsidiary of Dexia in order to hedge its funding costs. The swap was more than €1 million in the negative to the city at inception, and a small upfront premium subsequently paid to Prato by the Franco-Belgian lender was not enough