Back when rates looked cheap, it became habit to sell financing and swaps and the like to municipalities (perhaps not the brightest municipalities) for infrastructure projects. Now that the terms of the related debt are blowing up badly, states like Alabama want their money bank, and JP Morgan on a platter.
The potential sanctions by the U.S. Securities and Exchange Commission, disclosed yesterday in two sentences of a 162-page quarterly regulatory filing, relate to a series of bond and interest-rate swap sales in 2002 and 2003 for sewers in Jefferson County, which covers about 1,125 square miles including Birmingham, the state's largest city with more than 240,000 residents.
Since credit markets seized up in 2007, Jefferson County's annual sewer debt payment more than doubled. At least seven former JPMorgan bankers are under scrutiny in a Justice Department criminal antitrust investigation of the sale of unregulated derivatives to local governments across the U.S., federal regulatory records show.
We suspect this will be but the first of these, as the big banks shamelessly pursued business in this area and there are a lot of deals that have blown up badly since municipalities signed on the dotted line.
JPMorgan May Face SEC Charges Over Alabama Bond Deals [Bloomberg]