HEY, BIG BANKS, Philadelphia wants its money back!
After financial agreements called interest-rate swaps went south along with the economy a few years back, the city and the Philadelphia School District had to fork over millions of dollars to major banks to sever the deals.
This spring, the city retained an outside law firm to examine whether to file a lawsuit. The move followed a resolution that Councilman Jim Kenney introduced in March calling for hearings to investigate interest-rate swaps.
"Our transit agency is suffering, our schools are in a terrible situation and the city is always on the brink of financial calamity," Kenney said Tuesday at a news conference held at City Hall to draw attention to the swap deals. "So we're hoping that the law firm that we have engaged to look at this comes back with a favorable idea to go forward with a lawsuit to sue Bank of America, Wells Fargo and all of the others — everybody who was involved in the collapse of the economy."
He said he hoped that a lawsuit would force the banks to come to the table to negotiate a deal that does not include "punitive payments."
The city's Law Department said the outside law firm — Faruqi and Faruqi — will "evaluate potential claims related to these transactions, but it has not yet reached a decision on whether to file suit." The firm would only be compensated if the city recovered damages from a suit.
Critics of the deals say that in the early 2000s bankers persuaded local governments and schools throughout the country to purchase swaps that were contingent on the future of U.S. interest rates. But those deals went sour in 2008, when the economy crashed and governments were forced to pay banks the difference once market interest rates plummeted.
Kenney was joined at the news conference by other critics of the swap deals, the Transit Workers Union Local 234 and Fight for Philly. Organizers pointed to a report titled Riding the Gravy Train, issued this month by a group of transit advocates and workers known as the Refund Transit Coalition. The report details costs of interest-rate swaps for cities across the country and its impact on public transit systems.
According to the report, the swap deals with Bank of America, Citigroup, JPMorgan Chase and the Royal Bank of Canada cost the city $35 million annually.
Regarding SEPTA, Tom McFadden, the agency's assistant treasurer, said its $3.6 million swap deal "is performing as it is supposed to," adding that it helps pay for long-term capital projects. n
Contact Jan Ransom at 215-854-5218 or Ransomj@phillynews.com, or follow on Twitter @Jan_Ransom. Read her blog, PhillyClout.com
