Bloomberg News

Banks Raided in EU Antitrust Probe Over Euribor Derivatives

October 19, 2011

(Updates with comment from EU in fifth paragraph.)

Oct. 19 (Bloomberg) -- European Union regulators raided banks that offer financial derivatives linked to the Euro Interbank Offered Rate, saying they were investigating possible collusion.

The European Commission said it had “concerns that the companies concerned may have violated EU antitrust rules that prohibit cartels and restrictive business practices.” It didn’t name the businesses involved.

The EU probe adds to earlier inquiries by the commission, U.K. and U.S. financial regulators into the possible breach of rules governing the Libor benchmark borrowing rate. Barclays Plc, HSBC Holdings Plc and Royal Bank of Scotland Group Plc have said they were quizzed by the EU earlier this year.

Joaquin Almunia, the EU’s competition commissioner, has made financial markets one of his priorities and said last month that they required “really close scrutiny.” In April, he started a separate probe into Goldman Sachs Group Inc., JPMorgan Chase & Co. and 14 other investment banks over agreements in the market for credit-default swaps that may harm competition.

“All the products we are talking about belong to the category of interest rate derivatives in euros,” said Amelia Torres, a spokeswoman for the commission.

‘A Few’ Raided

Banks including Deutsche Bank AG and RBS were visited by EU officials yesterday, according to two people familiar with the probe. Deutsche Bank, RBS, UBS AG, Barclays, HSBC, BNP Paribas SA declined to comment today.

Cedric Quemener, the manager at Euribor-EBF responsible for setting the euro interbank lending rate, said only “a few” of the 44 banks involved in Euribor were visited by EU officials yesterday. He said it would be “almost impossible” to manipulate the rate.

“You would need to have an agreement between so many different banks from so many different countries that there’s no way someone could do that,” Quemener said in a telephone interview from Brussels. “We have high monitoring and very clear transparency in the way we are defining Euribor.”

Libor and Euribor rates are used as benchmarks for trillions of dollars worth of financial products ranging from mortgages to student loans.

The EU probe may include how derivatives contracts between banks could give them an incentive to manage the Euribor rate.

“Keeping funding costs down by some untoward activity, you are able to fund derivatives activity more cheaply and so boost margins,” said Richard Reid, director of research for the International Centre for Financial Regulation, who isn’t involved in the investigation.

Special Agreements

There are “a lot of special agreements between financial institutions to share information, also for commercial use to increase revenues,” said Diego Valiante, a research fellow at the European Capital Markets Institute in Brussels.

Antitrust regulators are “trying to understand if these special agreements are forbidding new players to enter the market,” Valiante said.

Several of the banks involved in Libor, including Banco Bilbao Vizcaya Argentaria SA, Nordea Bank AB and Natixis SA, said they weren’t involved in the latest probe.

“We have nothing to hide,” Guido Ravoet, chief executive officer the European Banking Federation and member of the steering committee of Euribor-EBF said in an e-mailed statement. “We feel there is perhaps not enough understanding of the elaboration of the benchmarks themselves in the European Commission.”

The Wall Street Journal reported the EU raids yesterday.

--With assistance from Maud van Gaal in Amsterdam, Jim Brunsden in Brussels, Howard Mustoe and Gavin Finch in London, Elisa Martinuzzi in Milan, Elena Logutenkova in Zurich, Aaron Kirchfeld in Frankfurt, Fabio Benedetti-Valentini in Paris and Stephanie Bodoni in Luxembourg, Charles Penty in Madrid. Editors: Anthony Aarons, Peter Chapman

To contact the reporter on this story: Aoife White in Brussels at awhite62@bloomberg.net.

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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