EC Hands Down $2.3 Billion In Fines To 8 Banks For Rigging Benchmark Rates

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The European Commission (EC) slapped eight global banking giants with fines of €1.71 billion ($2.33 billion) for their role in manipulating the benchmark LIBOR, EURIBOR and TIBOR on several occasions between 2005 and 2010. [1] The apex regulatory body for the European Union also initiated formal proceedings against three banks and a cash broker for declining to settle with it.

The fine imposed on each of the banks took into account their involvement as well as the potential impact of the manipulation globally. However, a glance through the actual fines shows that the biggest factor behind the final fine figure was the amount of co-operation each bank extended to the EC as a part of the investigations, as UBS (NYSE:UBS) and Barclays (NYSE:BCS) were let off the hook without any fine despite being assessed for fines of €2.5 billion ($3.4 billion) and €690 million ($940 million), respectively.

While being just one of several investigations by financial regulators around the globe into the rate-rigging scandal, the EC’s investigation was admittedly the largest and is likely to be used as a template for other such settlements over coming months. The deal is also expected to trigger more lawsuits against the banks in the near future – especially those who admitted to their wrongdoing as a part of the EC deal.

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See the full Trefis analysis for UBSBarclaysJPMorganCitigroupDeutsche Bank

Benchmark rates like the LIBOR, EURIBOR and TIBOR are used around the globe by financial institutions to determine interest rates for everything ranging from retail products like credit cards and mortgages to institutional products like derivative contracts. Since these rates are determined by the world’s largest banks who also have established securities trading operations, there is an inherent incentive for them to collude and move the benchmark rates in a direction more profitable to them.

As a part of its investigation into the rate-rigging scandal, the European Commission divided the banks into two cartels based on their involvement in determining the benchmark rates for the euro and Japanese yen. The table below summarizes the EC’s findings and settlement figures for both these cartels:

Bank Involved In Fine (€ mil) Fine ($ mil) Other Notes
UBS Yen cartel 0 0 €2.5 billion ($3.4 billion)  fine waived
Barclays Euro cartel 0 0 €690 million ($940 million) fine waived
Deutsche Bank Euro & Yen cartels 725 986 €466 for euro cartel, €259 for yen cartel
RBS Euro & Yen cartels 391 532 €131 for euro cartel, €260 for yen cartel
Société Générale Euro cartel 446 607
JPMorgan Euro & Yen cartels 80* 109* Yen cartel only. Formal proceedings initiated over euro cartel involvement
Citigroup Yen cartel 70 95
RP Martin Yen cartel 0.25 0.34
Crédit Agricole Euro cartel NA NA Formal proceedings initiated
HSBC Euro cartel NA NA Formal proceedings initiated
ICAP Yen cartel NA NA Formal proceedings initiated

As we mentioned earlier, UBS and Barclays escaped without a fine because of their cooperation in the investigation despite being assessed with the highest fine amount in each cartel. For their involvement in both the cartels, Deutsche Bank and RBS will be together shelling out a little more than $1.5 billion. Quite understandably, the quantum of fine is higher for manipulating euro rates compared to yen rates due to the more widespread use of euro benchmark rates globally.

Among the two U.S. banks named by the EC, Citigroup (NYSE:C) will pay almost $100 million in fines for yen-related manipulation whereas JPMorgan (NYSE:JPMorgan) only accepted the EC’s ruling over its involvement in the yen cartel. The country’s largest bank will fight the EC in court over its involvement in rigging euro-related rates along with Credit Agricole and HSBC (NYSE:HBC).

What remains to be seen is how this record deal by the EC impacts the legal liability of each of the banks that settled over the near future by leaving them vulnerable to additional lawsuits from institutional investors.

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  1. Antitrust: Commission fines banks € 1.71 billion for participating in cartels in the interest rate derivatives industry, EC Press Releases, Dec 4 2013 []