A Los Angeles city councilman wants out of deals with two Wall Street banks he says are costing the city money.
Councilman Paul Koretz introduced a motion Friday that calls on two banks to either renegotiate contracts with the city at no cost, or for the City Council to terminate business with the banks altogether if they refuse.
"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, not obscene profits," Koretz said.
In 2006, the city entered into an interest rate swap deal with Bank of New York Mellon and Dexia for its Wastewater System Revenue Bond that was initially issued in 1988. The rate swap was done to take advantage of lower interest rates at the time.
Lisa Cody, research policy analyst with Fix LA -- which released a report on the city's Wall Street spending in March -- said that though the deal was supposed to save the city money, it soured when the economy crashed in 2008. This left the city paying a fixed interest rate that was higher than the market rate, while the banks paid variable interest rates that were kept low by the Federal Reserve.
Since 2006, the deal has cost the city $4.8 million per year, and since 2008, the banks have "unfairly profited" by more than $65 million, Cody said.
She said that if the city does not terminate or renegotiate the contracts, the city stands to lose an additional $69 million since the deal is locked in until 2028.
The motion asks that the banks either renegotiate or terminate the contracts without charging the city. In 2012, the city paid $26.1 million to terminate a swap deal with New York Mellon and Dexia.
The motion also states that if the banks are unwilling to terminate or renegotiate at no cost, the City Council should consider ending all current business with the banks, and exclude them from any future business with the city.
"New York Mellon Bank and Dexia need to either step up to the plate or need to be told to step away," Koretz said.
Kevin Heine, spokesman for Bank of New York Mellon, said that the city analyzed the financial impacts before entering into the deal.
"As part of a competitive bidding process on this transaction, the city relied on an independent financial advisor to provide an impartial objective assessment of the economic benefits of the transaction," Heine said.
The company wouldn't comment on the motion's request for the bank to alter the contracts at no charge to the city.