According to some estimates, Italian authorities could be sitting on €35bn (£33bn) of liabilities relating to bonds they took out in the 1990s, which could turn into Italy's biggest financial scandal since the Parmalat fraud.
Milan has said it is considering legal action against a group of lenders – Deutsche Bank, JP Morgan Chase, UBS and Dublin-based Depfa, part of Germany's Hypo Real Estate. The group struck a deal to help Milan manage repayments on €1.7bn of bonds it bought to finance public spending.
Milan is losing money on the derivatives contract it took out with the banks, which allowed it to swap a fixed rate of interest on the bonds for a variable rate. Milan's mayor, Letizia Moratti, said: "We reserve the right to take legal action". Italian police are also investigating and raided the banks' offices earlier this year. The banks would not comment.
