The ingredients of swap 4175 are that the bank pays Libor to the city and gets a (very low) fixed rate from the city as long as one EUR is higher than 1.54 CHF. (The exchange rate then was around 1.65). If EUR is observed lower than 1.54 CHF, then the interest rate to be paid increases by (1.54-x)/x with x being the exchange rate. Hence, if EUR and CHF were quoted at par, this would mean an interest rate of 54%.
In October/November 2011 (the exchange rate being 1.22 then), the city filed a claim that the swap had not been entered on a legally binding basis and that all payments arising form the swap should be returned. The bank filed a counterclaim. The trial at the commercial court is still ongoing.
I will discuss the mathematics (and only the mathematics) of this swap in a public lecture (in German) at the Johannes Kepler symposium. Wir bewerten einen Swap. on February 5.
Exchange rate of CHF / EUR between Jan. 2007 and Jan 2014. Data Source: Oesterreichische Nationalbank. |