Thirteen of the world’s biggest investment banks were accused by the European Union of colluding to curb competition in the $10 trillion credit derivatives industry.
The EU sent a so-called statement of objections to 13 banks, data provider Markit Group Ltd. and the International Swaps & Derivatives Association over allegations they sought “to prevent exchanges from entering the credit derivatives business between 2006 and 2009,” the European Commission said.
EU Accuses 13 Investment Banks of Hampering CDS Competition
Goldman Sachs Group Inc. signage is displayed on the floor of the New York Stock Exchange in New York.
Goldman Sachs Group Inc. signage is displayed on the floor of the New York Stock Exchange in New York. Photographer: Jin Lee/Bloomberg
Commissioner in Charge of Competition Joaquin Almunia
Commissioner in charge of competition Joaquin Almunia said, “It would be unacceptable if banks collectively blocked exchanges to protect their revenues from over-the-counter trading of credit derivatives.”
Commissioner in charge of competition Joaquin Almunia said, “It would be unacceptable if banks collectively blocked exchanges to protect their revenues from over-the-counter trading of credit derivatives.” Photographer: Andrew Harrer/Bloomberg
The probe is one of several by the Brussels-based commission into the financial industry, including whether banks colluded to manipulate U.K. and European benchmark
interest rates.
Joaquin Almunia, the EU antitrust chief, said he’s seeking to settle the probes into Libor and Euribor with some of the same banks in the CDS case by the end of the year.
The EU
in April 2011 opened a probe into whether banks colluded by giving market information to Markit, a data provider majority-owned by Wall Street’s largest banks. Earlier this year, the EU extended its investigation to include ISDA, having found indications that it “may have been involved in a coordinated effort of investment banks to delay or prevent exchanges” from entering the credit swaps business.
The banks in the CDS probe are Goldman Sachs Group Inc.,
JPMorgan Chase & Co. (JPM) Citigroup Inc. (C),
Credit Suisse Group AG (CSGN),
Deutsche Bank AG (DBK), Morgan Stanley,
Barclays Plc (BARC),
Bank of America Corp. (BAC),
HSBC Holdings Plc (HSBA),
Royal Bank of Scotland Group Plc (RBS),
BNP Paribas SA (BNP) and
UBS AG (UBSN), the commission said. Bear Stearns, which is now a unit of JPMorgan, was also named by the commission.
‘Desperate’ Banks
“I’m sure banks are desperate to keep these products from going on exchange and keep as much of the pie to themselves as they can, that sort of stands to reason,” Robert Kendrick, a credit analyst at Legal & General in London. “As an investor in banks, I’d be surprised if it makes a huge difference. As an investor in CDS more generally, I’d like to see more transparency.”
ISDA said the organization “is cooperating fully with regulatory authorities.”
“As previously stated, ISDA is confident that it has acted properly at all times and has not infringed EU competition rules,” New York-based ISDA said in an e-mailed statement.
Officials at Deutsche Bank, Goldman Sachs,
Morgan Stanley (MS), JPMorgan, Credit Suisse and Citigroup declined to comment. Officials at Markit couldn’t be immediately reached to comment on the statement of objections.
Licensing Difficulties
Difficulties faced by Deutsche Borse AG and the CME Group Inc. as they tried to enter the industry sparked the EU investigation. The two companies were unable to obtain CDS exchange-trading licences from Markit and ISDA, who were acting on instructions from investment banks, according to findings by the EU investigating team.
“The commission takes the preliminary view that the banks acted collectively to shut out exchanges from the market because they feared that exchange trading would have reduced their revenues from acting as intermediaries in the OTC market,” the EU’s executive arm said.
Global regulators are seeking to toughen regulation of the credit-default swap market, saying the trades helped fuel the financial crisis. The
U.S. Department of Justice is also probing the credit derivatives clearing, trading and information services industries.
While Almunia declined to speculate on the size of possible penalties against the companies, he said regulators gave the parties “some general orientation on how to estimate and calculate the fines.”
Too Soon
“Today, it is still very soon to elaborate on this issue,” he said.
Around 2 million CDS contracts have been traded so far this year, with a notional value of $10 trillion, the commission said, citing data from the Depository Trust & Clearing Corporation.
Bloomberg LP, the owner of
Bloomberg News, competes with Markit in selling information to the financial-services industry.
The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies peaked at 217 basis points in December 2008 from 20 basis points before the financial crisis. The measure fell two basis points to 117 at 1:15 p.m. in
London.
To contact the reporter on this story: Stephanie Bodoni in Luxembourg at
sbodoni@bloomberg.net Ben Moshinsky in London at
bmoshinsky@bloomberg.net Abigail Moses in London at
amoses5@bloomberg.net
To contact the editor responsible for this story: Anthony Aarons at
aaarons@bloomberg.net
