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More importantly, the terms of the back-to-back hedge swaps
with respect to the LIBOR Notes are inconsistent with the
arbitrage interpretation. In our Findings of Fact, we discussed
at length the structural correspondence between these swaps and
the hedge swaps between Merrill Capital, BFCE, and BOT, and we
discussed the functional implications of that correspondence.
Thus, although it appears that ABN could reasonably have expected
to derive gain from these swaps, this gain represented value
transferred, through the network of structured transactions
growing out of the contingent payment sale, from the partnership
to the banks, to Merrill Capital, and back to ABN and Kannex.
The section 453 investment strategy was not designed to provide
ABN with an opportunity for profitable LIBOR Note swaps. On the
contrary, the swaps were calculated to compensate ABN in part for
Kannex's share of the economic loss sustained by the partnership
through the section 453 investment strategy.
Considering the high costs of the financial engineering it
required and ABN's unwillingness to have Kannex share any of
these costs or be exposed to any of the entrepreneurial risks it
entailed, the section 453 investment strategy would not have been
consistent with rational profit-motivated behavior in the absence
of the expected tax benefits.
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