Unitech accuses Deutsche Bank of selling ‘unsuitable' interest swap

Real estate player Unitech has become the latest company to seek compensation in the UK over the sale of a controversial type of interest rate derivative product designed to protect firms against rate rises, according to reports.

Unitech has accused Germany's Deutsche Bank of selling it an unsuitable interest rate swap, and not fully explaining the risks of the deal in a lawsuit lodged in the Queen's Bench Division of London's High Court of Justice this month, according to Bloomberg News.

Unitech alleges that Deutsch Bank “knew, or appreciated, that it was likely to make significant amounts of money,” from the interest rate swap on a $150-million loan deal, according to the report.

In the three years till 2010, $23.5 million worth of payments were made showing that the “transaction was not a suitable hedge.” According to the report, Deutsche Bank had previously sued Unitech claiming it was due $11 million under the swap contract.

Both Unitech and Deutsche Bank declined to comment on the story.

Claims stacking up

Claims over controversial interest swap deals have been stacking up in both Europe and the US.

Unitech's case comes a week after Britain's market regulator the Financial Services Authority said it was examining the interest rate swaps sold to thousands of small and medium-size businesses.

“We have requested extensive information from the largest providers of these products including the volumes of sales, the level of complaints, the ways in which the products were sold and the material that was provided to purchasers,” according to the FSA.

The swaps were also discussed at a House of Commons Treasury Select Committee hearing last week.

Earlier this month, Unitech reported a 98 per cent drop in consolidated net profit for the quarter ending March in what it described as “a very challenging year,” forecasting that 2012-2013 would be “significantly better”.