Detroit manager sought SEC probe of banks over interest rate swaps
Detroit asked a U.S. regulator to consider bringing charges against two banks for costly interest-rate swaps that factored in the city’s record-setting municipal bankruptcy case, Detroit Emergency Manager Kevyn Orr testified on Friday.
Orr said Detroit asked the U.S. Securities and Exchange Commission to investigate its deals with UBS AG and Merrill Lynch Capital Services, a unit of Bank of America, for interest rate swaps to hedge risk on some of the $1.4 billion of pension debt Detroit sold in 2005 and 2006.
The city thought there were “serious questions” about whether it owed the banks anything at all, Orr testified, and Detroit weighed trying to invalidate the swaps. But officials decided chances of prevailing in court were only “more or less 50/50,” so it decided to bargain with the banks instead.