Global banks have been hit with yet another heavy sanction for misdemeanours that they perpetrated in the run-up to the financial crisis. The European Commission yesterday (4 December) imposed its largest ever anti-trust fine for alleged manipulation of benchmarks used to price mortgages and consumer loans.
The fines, totalling €1.7 billion, are the result of a settlement reached very quickly by the Commission over allegedly collusive submissions made to manipulate the Euro and Yen-denominated London interbank offered rates. But what appears to be a resounding success could backfire, both on the Commission and on the parties, since although seven banks and one broker agreed to settle, four refused to do so.
Joaquín Almunia, the European Commissioner for competition, said as he presented the decision yesterday that the antitrust regulator had not yet charged the refuseniks but did hold relevant “information”. Yet by choosing to adopt a so-called ‘hybrid settlement’ – in which some, but not all, suspects settle – the Commissioner must ensure that punishment is even more severe on any bank found guilty of participating in a cartel that refused to settle. To do otherwise, would seriously undermine the Commission’s settlement procedure.
The settlement procedure was introduced to save resources. Companies receive a discount on their fines, while the Commission avoids the travails of formal charges and court battles. (Only a cynic would suggest that the Commission opted for a hybrid settlement in this case so that it could boost its otherwise puny cartel fine figures for 2013.)
However, the ‘hybrid decision’ is likely to embroil the Commission in issuing formal charges and defending its case in hearings and in court. Resource efficiency as a result of settling will be reduced, while the Commission will have allowed those banks that settled to get off more lightly than they might otherwise have done.
The likely prospect of appeals offers some interesting possibilities. One of the motivations for the four hold-outs may have been to postpone the day when those banks might face court actions for huge damages; but they may also have balked at signing up to what is the first anti-trust fine relating to financial products and a novel anti-trust infringement.
There are uncertainties surrounding the accusation of colluding to distort “the normal course of pricing components” for derivatives – the Commission’s words. This is not so clear an anti-trust infringement as might be fixing of the sale price of elevators or removal services.
Indeed, the danger of settlements and commitment procedures, where a company gives a commitment not to behave in a certain manner so as to end an anti-trust investigation, is that they create precedent without being subject to legal challenge.
Deutsche Bank: €725.4 m
Société Générale: €445.9m
Royal Bank of Scotland: €391.1m
JP Morgan*: €79.9m
RP Martin: €247,000
Crédit Agricole, JP Morgan*, HSBC and ICAP.
*JP Morgan settled the LIBOR-related charges but not the EURIBOR charges.
Deutsche Bank, Barclays and other others have waived their right to challenge the Commission’s legal reasoning on the LIBOR and EURIBOR manipulation. The three others have not.
Eventual guidance from an EU court could prove important, particularly since the Commission harbours similar suspicions in relation to foreign exchange markets, oil and gas benchmarks and the Swiss-franc benchmarks.
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