A controversial swaps deal has reached the High Court in London. Credit Suisse is suing its former client Stichting Vestia, a Dutch affordable housing provider now named Vestia, for €83 million. The Swiss bank argues that Stichting Vestia owes this sum from 11 derivative contracts that were signed in 2010 and 2011, newswire Bloomberg reports from the trial in London.

In 2012, former Stichting group treasurer Marcel de Vries drove the housing provider to the brink of collapse when €23 billion worth of swaps he previously bought led to losses of €2 billion because of falling interest rates. Unlike Vestia’s other counterparties, Credit Suisse refused to back out of the contract.

De Vries, who was arrested in April 2012 and is still under investigation in the Netherlands, “took it upon himself to trade interest-rate derivatives in Vestia’s name on an enormous scale and with disastrous consequences,” Bloomberg cites Vestia in court documents.

But Credit Suisse refutes the claim that de Vries was acting on his own. By contrast, what he did “was well known and well appreciated by not simply the internal supervisory board but also the regulatory authorities,” a lawyer for Credit Suisse told the court, according to the newswire.

Banks mis-sell hedging products

Abhishek Sachdev, managing director of FCA-authorised Vedanta Hedging, which acts as an expert witness in legal cases involving derivatives, testified: “this is not just an example of a ‘rogue’ employee trying to act for personal gain.” He says banks routinely mis-sell products to clients who don’t fully understand their implications, thereby damaging their client relationships. He claims to know similar cases  where the bank encouraged its clients to carry on dealing in more and more derivatives despite mounting complexity and risks. 

Vestia is not the only one to get caught up in these allegedly mis-sold hedging products by banks. In 2012, the UK’s Financial Conduct Authority concluded that it had found “serious failings” by banks in the way they sold interest rate hedging products. Apart from firms such as Vestia, city authorities throughout Europe also signed similar contracts that turned sour.