| Times of India | - |
BRUSSELS:
EU anti-trust regulators vowed to keep investigating rate-rigging on
Wednesday as they slapped a record 1.7 billion euro penalty on six
financial institutions including Deutsche Bank, RBS and JPMorgan.
E.U. Imposes $2.3 Billion in Fines Over Rate-Rigging Scandal
By CHAD BRAY and JACK EWING
John Thys/Agence France-Presse — Getty Images Joaquín
Almunia, the European Union’s competition commissioner said that the
European Commission was determined to fight “cartels in the financial
sector.”The widely anticipated settlement, worth about $2.3 billion and announced by European Union antitrust officials on Wednesday, is the largest combined penalty ever levied by European competition authorities and marks the culmination of an investigation that dates back more than two years.
European officials said they uncovered a collusive scheme by traders at some of the world’s largest banks, including Citigroup, the Royal Bank of Scotland and Deutsche Bank, to improperly influence the London interbank offered rate, or Libor, as it relates to the Japanese yen and the euro interbank offered rate, or Euribor.
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VideoSince then, five financial institutions, including UBS, R.B.S. and Barclays, have admitted wrongdoing and paid more than $3 billion in fines to regulators worldwide. European Union antitrust authorities were not part of those previous settlements.
“The commission is determined to fight these cartels in the financial sector,” Joaquín Almunia, the European Union’s competition commissioner, said at a news conference in Brussels.
Unlike its American and British counterparts, the European Union has limited enforcement powers over financial firms, which are primarily regulated in their home markets or where they conduct the bulk of their business.
As a result, European Union antitrust authorities had to build a case based collusive conduct among a group of financial firms, rather than improper behavior by a single entity or group of traders at one bank.
To set the Libor and Euribor rates, banks submit the rates at which they would be prepared to lend money to one another, on an unsecured basis, in various currencies and varying maturities. Those rates are averaged, after the highest and lowest ones are eliminated, and that becomes that day’s rate.
The settlement was seen as a demonstration by European authorities that despite a reputation for excessive deference to banks, they, too, can come down hard on offenders.
“By European standards, it’s a large fine,” said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels. “It signals that the time when only the U.S. can impose big fines is probably over.”
But the settlement also highlighted Europe’s lack of a financial markets enforcer with powers similar to the Securities and Exchange Commission in the United States, including authority to pursue criminal charges.
Wednesday’s announcement marked the first time that two American institutions, Citigroup and JPMorgan Chase, faced penalties in the rate-fixing investigations. They will pay about €149 million combined. The commission said the activity by the American banks only lasted a short time, the longest being about three months .
The largest penalty was levied against Deutsche Bank, which agreed to pay about €724 million. The bank said Wednesday that the size of the penalty reflected its status as the No. 2 player in the market for derivatives tied to interest rates, rather than any particularly egregious conduct by its employees.
The settlement was a milestone for Deutsche Bank’s efforts to cope with numerous lawsuits and official inquiries related to its conduct in recent years. The settlement amount was within expectations and the bank said it would be covered by the 4.4 billion euros already set aside for legal expenses.
Jürgen Fitshen and Anshu Jain, the co-chief executives of Deutsche Bank, said in a statement: “The settlement relates to past practices of individuals which were in gross violation of Deutsche Bank’s values and beliefs.”
Deutsche Bank, Citigroup and other large American banks are among the financial institutions still under investigation by the authorities in the United States and Britain.
Additional penalties may be levied in those investigations as early as next year, but it is unclear if any American banks will ultimately face action in those cases, according to people briefed on the investigations.
Barclays and UBS, which alerted European Union officials to the improper practices, will avoid fines as part of Wednesday’s settlement. Citigroup, which will pay a total of €70 million in fines, avoided an additional €55 million penalty by cooperating with investigators.
“We are pleased to resolve this matter with the European Commission and to put this investigation behind us,” Citigroup said in a statement. “Citi continues to cooperate with other regulators in connection with investigations and inquiries related to various interbank offered rates and other benchmark rates.”
One name that was missing from the banks that settled on Wednesday was Rabobank. The Dutch lender agreed in October to pay more than $1 billion to settle investigations by British, American and other authorities relate to Libor and Euribor.
The banks that agreed to settle received a 10 percent reduction in the total amount of fines they could have faced, European Union officials said.
“Those who have settled today have recognized their wrongdoing,” Mr. Almunia said. “Those who have not settled are not ignorant to what we know. It’s up to them to decide what to do.”
The penalty exceeds a €1.47 billion fine levied last year against seven companies for collusion in the manufacturing of cathode-ray tubes for computer monitors and televisions.
The banks that reached settlements related to Euribor are: Barclays, Deutsche Bank, R.B.S. and Société Générale. The improper activity took place from September 2005 to May 2008, officials said.
Mr. Almunia said that the antitrust regulators had opened investigations of HSBC, JPMorgan and Crédit Agricole related to Euribor.
JPMorgan said that the yen Libor settlement, in which it agreed to pay €79.9 million, related to the conduct of two former traders during a one-month period in early 2007. The settlement makes no finding that JPMorgan management had any knowledge or involvement in the conduct at issue or that their actions impacted the firm’s Libor submissions, the bank said.
JPMorgan said that it has cooperated fully with antitrust regulators and doesn’t believe the bank engaged in wrongdoing with respect to Euribor. The bank said it intends to defend itself fully.
The banks that reached settlements related to yen Libor are: UBS, R.B.S., Deutsche Bank, JPMorgan and Citigroup. The British broker RP Martin Holdings also agreed to a fine over yen Libor. The improper activity took place from 2007 to 2010, officials said.
Barclays said it voluntarily reported the Euribor conduct to the European Union and cooperated fully with the investigation. “The settlement acknowledges that the banks’ conduct infringed E.C. competition law by attempting to distort the normal course of pricing components for interest rate derivatives referencing Euribor,” the bank said.
The European Union has also opened an investigation regarding yen Libor against the British financial firm ICAP, which has already agreed to pay the British and American authorities $87 million related to the Libor rate fixing.
R.B.S. said on Wednesday that it had undertaken efforts, since it first became aware in 2011 of the improper conduct, to improve its systems and controls regarding Libor and other benchmark rates.
“We acknowledged back in February that there were serious shortcomings in our systems and controls on this issue, but also in the integrity of a very small number of our employees,” said Philip Hampton, R.B.S. chairman.
“Today is another sobering reminder of those past failings and nobody should be in any doubt about how seriously we have taken this issue,” Mr. Hampton said. “The R.B.S. board and new management team condemn the behavior of the individuals who were involved in these activities. There is no place for it at R.B.S.”
HSBC, R.P. Martin, ICAP and Crédit Agricole declined to comment. Société Générale did not immediately respond to requests for comment on Wednesday.
David Jolly contributed reporting from Paris.
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