UBS searched in Parmalat probe
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10 people are under arrest in the Parmalat fraud case.
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MILAN, Italy (Reuters) -- Italian tax police searched UBS offices in Milan on Friday to investigate a 420-million bond the Swiss bank bought from Parmalat five months before the dairy group went insolvent, a judicial source said.
UBS is the latest financial institution to have its offices searched by authorities investigating the food giant's multi-billion-euro accounting scandal.
"We can confirm as expected that Italian investigators have visited our offices in Milan in connection with the investigation into Parmalat. We are fully cooperating,'' a UBS spokesman said in London.
Ten people are under arrest and at least 28 are under investigation in the case, which U.S. regulators have called one of the world's biggest frauds. No charges have been brought.
Milan prosecutors investigating for market rigging are trying to establish how much banks who helped Parmalat issue some eight billion euros in bonds knew about the state of its finances.
The warrant for Friday's search of two UBS offices in Milan asked tax police to gather documents on the 420 million euros of bonds the bank has said it bought from Parmalat last July, the judicial source told Reuters.
A report on Parmalat's finances by its new auditor, PriceWaterhouseCoopers, found that only 130 million euros of the bond's proceeds went to the food group's operations.
The other 290 million euros went into a tax-related scheme which involved buying for that sum bonds issued by a Cayman Islands unit of Banco Totta, itself a Portuguese subsidiary of Spain's biggest bank Santander Central Hispano.
For reasons not explained the Totta bonds' repayment was linked to Parmalat's own credit quality so that if the food group defaulted on its debts they would become worthless, PWC said.
However, banking sources familiar with the transaction said there was also a collateral agreement whereby Banco Totta was to pay UBS 290 million euros if Parmalat went bust.
UBS has said it was fully hedged on the Parmalat bonds and thus suffered no losses from the deal. "Parmalat represented themselves as a financially sound investment grade company,'' a UBS spokesman said on Friday.
"UBS has not ended up profiting from the transaction,'' he added.
The Swiss bank also lent 103 million euros to Parmalat founder Calisto Tanzi in 1996, the same year UBS underwrote a 103 million-euro bond issue for Parmalat.
No jobs at risk
The UBS search came as Parmalat's government-appointed administrator reassured Italy no jobs were at risk in a business plan he expects to present by the end of the month.
Industry Minister Antonio Marzano met administrator Enrico Bondi and afterwards said he hoped the food group's creditors would form a single group and approve the plan by April.
He said the company was not in danger of collapse and dismissed talk of possible lay-offs.
"No, everyone is being paid regularly,'' Marzano said.
Parmalat's net debt stood at 14.3 billion euros at the end of September last year, about eight times the amount stated by its former managers, PWC said last month.
Under seige by creditors, Parmalat's Brazilian unit, one of the largest outposts in the group's global empire, said on Thursday it could sell all or part of its operations and would have to shut in days unless it received a cash injection.
With their entry into UBS's offices, police have now either searched the offices of, or seized documents from 10 institutions other than Parmalat, most of them foreign.
The institutions include five foreign banks or units of banks -- UBS, Bank of America, Morgan Stanley, Deutsche Bank and Citigroup's Eureka unit.
They also include Banca Intesa's asset management arm Nextra, and Banca Popolare di Lodi, both Italian.
Police have also searched offices of the Italian affiliate of auditor Deloitte & Touche, the former Italian affiliate of auditor Grant Thornton, and rating agency Standard & Poor's.
The scandal has hit more than 130,000 Italian investors, fanning outrage among politicians and consumer groups.
Economy Minister Giulio Tremonti has responded with a bill to reform the country's fragmented regulatory system. But the measure has been watered down amid bickering among Prime Minister Silvio Berlusconi's allies.
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Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
