LOS ANGELES (CBSLA.com) — A Los Angeles City Councilman is calling on a Wall Street bank to renegotiate or terminate interest rate swap deals that have allegedly cost city taxpayers $65 million since 2008.
KNX 1070’s Jon Baird reports City Councilmember Paul Koretz introduced a motion Friday that also calls for NY Mellon Bank to return what one coalition group calls “unfair profits” and termination payments related to such deals, or else face termination of the city’s agreements with the bank.
Koretz’s motion comes in response to a March 13 report from the Fix LA Coalition entitled No Small Fees (PDF), which alleges that Wall Street banks engaged in predatory lending practices that cost taxpayers more than $200 million last year in fees and payments, not including interest or principal.
Under terms expected to be outlined in the proposal, if NY Mellon Bank is unwilling to renegotiate or terminate the agreement at no cost to taxpayers, the City Council would consider terminating any current business with NY Mellon Bank and excluding the bank from all future business with the city.
“New York Mellon Bank and Dexia need to do what many others have done for the sake of this city, and that is to make sacrifices and not obscene profits,” Koretz said.
According to the report, Los Angeles entered into an “unnecessarily high-risk and complex” agreement with NY Mellon Bank in 2006 to refinance a Wastewater System Revenue Bond issued in 1988 from a fixed rate to a variable rate, a move that would capitalize on lower interest rates at the time.
But when the economy crashed in 2008, the city found itself locked into a fixed rate substantially above market rate, while NY Mellon was able to take advantage of historically-low interest rates set by the Federal Reserve, according to the report.
When asked for comment on the agreement, Bank of New York Mellon spokesman Kevin Heine said the deal was a straightforward transaction.
“We are providing to the city what they’ve asked for, which frankly, has provided and will continue to provide economic benefit to the city,” Heine said.
The Fix LA Coalition is affiliated with the SEIU, National Action Network (NAN), Koreatown Immigrant Workers Alliance (KIWA) and several other groups, according to the group’s website.