- 112 - 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.Page: Previous 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 Next
Last modified: May 25, 2011