European Union regulators are pushing to fine banks before the end of the year for attempting to fix benchmark interest rates tied to the euro and yen currencies, two people familiar with the investigation said.
Several banks want to resolve the antitrust probe and may negotiate with the EU for a settlement as early as October, said the people, who asked not to be named because the talks are in private. The EU would seek to include U.S. firms, such Citigroup Inc., that so far haven’t been punished by U.K. or U.S. regulators, one of the people said.
The European Commission’s investigations into price-fixing of the yen London interbank offered rate and euro Euribor are a top priority for the EU’s antitrust chief, Joaquin Almunia, and officials are working overtime and limiting vacations to wrap up the probes, the people said. Almunia has previously described Libor-fixing as “quite shocking” and has warned that any fines would “not be one euro.”
If Almunia wants to end the Libor investigations before he leaves office next year, he would have to seek a settlement with the companies, said Nicolas Petit, a law professor at the University of Liege in Belgium. “There’s no way they can close this cartel within two years without a settlement,” he said.
The alternative is a lengthier process to finalize cartel fines that takes an average of four years, Petit said, and may take longer for such a complex case with “a very extensive practice that covers a number of countries, a lot of products.”
The EU is also investigating the possible rigging of Swiss franc Libor, Almunia has said. That case is less advanced than the EU’s probes into the yen Libor, the cost of borrowing in the Japanese currency, and Euribor rates and unlikely to be completed this year, according to the two people.
Any settlement would include fines and an admission that the companies violated competition rules, one of the people said.
Barclays Plc (BARC), Deutsche Bank AG, UBS AG and Royal Bank of Scotland Group Plc are among banks and brokerages that have been quizzed by the EU about manipulation of lending rates that may have helped them and others generate profits from derivatives trades. Even minor tweaks to the rate by one bank would benefit trading positions to net millions of euros in profit, one of the people said.
The EU may seek to include Citigroup and other U.S. banks as part of any EU settlement or complaint, the person said. The New York-based bank said in a regulatory filing last month that it was subject to extensive legal and regulatory investigations related to Libor, including in the EU. Citigroup spokesman Jeff French declined to comment.
At least one other U.S. bank, JPMorgan Chase & Co. (JPM:US), said it has been contacted by investigators in the EU. JPMorgan spokesman Brian Marchiony also declined to comment.
Barclays, UBS and RBS have already paid more than $2.5 billion in fines to settle Libor manipulation claims with U.S. and U.K. financial regulators. Rabobank Groep, the Dutch agricultural lender, is next in line and faces a fine of more than the 290 million pounds penalty levied against Barclays, four people said in February. Deutsche Bank has set aside 500 million euros for possible Libor fines, German magazine Der Spiegel reported last month, without saying where it got the information.
Antoine Colombani, a spokesman for the Brussels-based authority, said the EU’s cases are ongoing.
“We are treating them with a high degree of priority, but as with all antitrust investigations, I cannot anticipate timing,” he said in an e-mail.
The EU is treating the collusion as a price-fixing cartel that can be punished under its antitrust rules. That means fines can be as much as 10 percent of a company’s yearly global revenue and are based on its annual sales in the market where it tried to fix prices, though authorities rarely impose the maximum.
The EU is behind the U.S. in announcing an end to its Libor investigations because it can’t settle with companies individually and must levy penalties against all targets of its case at the same time. The regulator must negotiate with all the companies to speed up a decision and in order to grant them a discount of as much as 10 percent on any fine for cooperating.
The settlement may not be possible if most or all the firms can’t negotiate a deal, one of the people said. If talks break down, the commission may require more time to draft detailed formal objections before imposing fines.
Petit warned that the minor fine reductions for a settlement give very little incentive for companies to reach a deal because other users of the rate will sue firms for over- charging them as a result of rate-rigging.
“Given that the potential for follow-on litigation is quite high, I can’t really understand why these banks would be hungry for a settlement in which they would give the commission the rope to hang themselves with,” Petit said.
Almunia, previously the EU’s economy commissioner during the 2007 and 2008 financial crisis, has used his powers as an antitrust enforcer to focus on the financial industry. He told reporters last year that Libor-rigging showed some of banks’ “most irresponsible behavior” and that a culture change was needed to eliminate a lack of transparency that tempted companies to flout competition rules.
The EU is also probing possible collusion involving Markit Group Ltd., the International Swaps & Derivatives Association and 16 investment banks including Goldman Sachs Group Inc. (GS:US) and JPMorgan Chase & Co. on how data on credit derivatives is shared. The EU levied a record 1.47 billion euros ($1.9 billion) in fines on a TV-parts cartel last year.
Libor, a benchmark for more than $300 trillion of financial products worldwide, is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. Lenders are asked how much it would cost them to borrow from one another for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and francs.
Euribor is a benchmark derived from a daily survey of lending quotes conducted for Euribor-EBF by Thomson Reuters Corp.
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