Bankers Trust international in landmark derivatives case

Bankers Trust international in landmark derivatives case

LONDON (Reuter): Bankers Trust International is taking Indonesia's PT Dharmala Sakti Sejahtara to London's High Court over losses on derivatives in what lawyers and banking officials describe as a landmark case.

Dharmala Sakti Sejahtara (DSS) said last week it has already sued the U.S. commercial bank over a financial transaction in which DSS was the arranger. DSS, an investment holding company, said an Indonesian court had ruled in its favor on May 30.

Bankers Trust is now suing DSS for US$64 million which Bankers claims it is owed for the same transaction involving swaps, said lawyers familiar with the case.

Swaps are one of the financial tools known as derivatives which are complex financial instruments used to protect against adverse move in markets or even to bet on a market's direction.

The $64 million loss stems from two swap transactions which Bankers Trust in Singapore sold to the Indonesian investment firm before and after the U.S. Federal Reserve raised interest rates on February 4, 1994, lawyers familiar with the case said.

Bankers Trust, repeating a previously stated position, declined to comment on the nature of the case.

"As this is a matter currently in litigation we are not at liberty to comment other than to say that we are confident that the facts of this case will confirm our position," a Bankers Trust spokeswoman in London said.

Lawyers close to the case said DSS is arguing the information it was given by Bankers was not completely accurate and reliable because it was an unsophisticated counterparty and needed a lot of information to understand the transactions.

Bankers' stance is that it did not act as an adviser and saw DSS as a sophisticated client, the lawyers said.

"It's the first case on the subject being heard in London," said Colin Bamford, chief executive of the Financial Law Panel, which was set up by the Bank of England.

Lawyers who specialize in financial litigation say the Bankers/DSS case will interest all banks who deal with unsophisticated counterparties. The judgment, they said, could set out principles over banks' duties to counterparties.

The case began in London's High Court last Monday and is due to run until the court breaks for the summer on July 31. A ruling is not expected until mid-September.