Parmalat points finger at banks

Parmalat’s new management has come out fighting in its effort to recover cash for its creditors by firing off a round of lawsuits. The management is suing those it claims turned a blind eye to Parmalat’s financial irregularities in order to extract underwriting and lending fees.

So far, Parmalat administrator Enrico Bondi has sued five major investment banks for over €11 billion. The Italian bankruptcy code allows for ‘clawback’ suits, wherein a bankrupt firm can sue to recover money spent in transactions made up to two years before entering insolvency.

Parmalat is suing Deutsche Bank and UBS for expensive refinancing transactions made towards the end of last year, immediately prior to the firm’s collapse. Bondi claims the terms of the transactions favoured the banks so aggressively that they must have known that Parmalat was in dire straits. He also points to Deutsche Bank’s advisory role to Parmalat after the summer of 2003.

Bondi also claims that, by arranging debt sales, banks were putting Parmalat under further debt pressure that they didn’t need.

The banks deny the allegations, with Citigroup describing Bondi’s approach as a “cynical tactic”. Parmalat is expected to sue Morgan Stanley and Banca Intesa also before the end of the year.

Parmalat is also suing former auditors Grant Thornton and Deloitte & Touche for up to $10 billion, alleging that the former abetted Parmalat’s fraud and the latter was negligent in not recognising the firm’s problems.

US investment banks face further trouble over the drawing up of Parmalat’s creditor list. Bondi has set a September 18 deadline for creditors to stake their claims. Once the list is final, Parmalat will be able to execute a planned debt-for-equity swap.

But Italian daily newspaper Il Sole 24 Ore reports that Bondi has accepted only 1% of US banks’ claims onto the list, rejecting Bank of America, Morgan Stanley and Merrill Lynch. Bondi has reportedly agreed to a quarter of European banks and nearly half of Italian financial institutions. Bondi plans to refloat a slimmed-down Parmalat on the Milan Bourse early next year.

Citigroup	$10bn in damages. Claims Citigroup helped construct financial chicanery that hid losses.
UBS	€290m clawback. Claims UBS made Parmalat buy €290m of credit-linked notes in return for buying €420m of bonds.
Deutsche Bank	€17m clawback. Claims Deutsche Bank took €17m of the proceeds of a €41m private placement deal.
Grant Thornton / Deloitte & Touche	Up to €10bn damages. Claims Grant Thornton knew about fraud, and Deloitte should have known.
CSFB	€248m clawback. Claims CSFB sold its conversion rights on a 2002 €500m convertible bond issue for early repayment of €248m.
Bank of America	Over €1bn in damages. Will claim BoA arranged private placements despite knowing of Parmalat’s problems.