Some of Europe's most powerful financial institutions, including Deutsche Bank and Societe Generale, were hit with a record €1.7bn in fines from Europe's top competition enforcer on Wednesday after admitting to participating in a cartel to rig two global interest rate benchmarks.
The multi-party settlements unveiled by the European Commission are the first results from a sweeping two-year probe into separate conspiracies to fix the Japan focused Yen Libor and its European sister benchmark Euribor, which allegedly involves a total of up to 10 financial groups.
Six banks and a broker agreed to pay fines for taking part in at least one cartel, two were spared fines for having alerted authorities to the issue, and the rest have rejected settlements and are likely to face formal antitrust charges from Brussels.
The agreements mark the first time that Deutsche, SocGen, Citi and JPMorgan have agreed to pay fines in connection with the wide-ranging global rate-rigging scandal.
Deutsche and Royal Bank of Scotland accepted taking part in both cartels and will pay fines of €725m and €391m, respectively. SocGen will pay €466m for attempting to rig the Euribor benchmark and profit from related derivatives. For Yen Libor-related abuses JPMorgan accepted a fine of €79.8m and Citi, €70m. The broker RP Martin will pay €247,000 for facilitating the cartel.
Barclays and UBS were spared penalties after being the first to alert authorities to the violations. But the banks accepted participating in the Euribor and Yen Libor cartels, respectively.
UBS's own fine would have totalled €2.5bn had it not won immunity for Yen Libor, putting the already record total fines in the shade.
Barclays' fine for Euribor transgressions would have totalled €690m without immunity, the commission said. The bank said in a statement that it was not part of the commission's investigation into the manipulation of Yen Libor.
Several banks and interdealer brokers - HSBC, JPMorgan Chase and Credit Agricole for Euribor and the broker ICAP for Yen Libor - rejected a settlement and could face charges and fines at a later point.
JPMorgan said in a statement that its Yen Libor fine related to "two former traders during a one-month period in early 2007" and added that it would "defend itself fully" against the commission's allegations of Euribor-rigging. HSBC also said it would defend itself "vigorously" against the allegations it colluded to fix interest rates.
However, even with these holdouts, the EU penalty breaks antitrust records in Europe; to date the highest combined EU fine for a cartel is around €1.5bn. Additional fines for other members of the cartel would be expected in a year or two.
Joaquin Almunia, the EU competition commissioner, said the cartels were "appalling examples of the misconduct" in the financial sector.
"What is shocking about the Libor and Euribor scandals is not only the manipulation of benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks who are supposed to be competing with each other."
The EU settlement fines bring the financial sector's total penalty tally for benchmark manipulation to $5.8bn, a sum that is expected to continue rising as regulators conclude probes and private lawsuits stack up.
More than a dozen banks and interdealer brokers were originally under the spotlight of the three separate EU probes, which cover Yen Libor, Euribor and the less advanced Swiss Franc Libor case.
Before the EU decision, four banks - Barclays, RBS, UBS, Rabobank - and broker ICAP settled with regulators in the UK, US and other jurisdictions over core Libor abuses. Most of the penalties related to manipulation or false reporting - until now, RBS was the only institution to admit violating antitrust rules in its settlement with the US Department of Justice.
While the full details of the settlement have yet to be published, the multi-bank EU cases provide a more rounded account of collusion across the sector, shedding light on the abuses within banks and the links between traders acting in concert to influence rate movements to their own advantage.
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>So-called hybrid cartel settlements are rare in the EU. Unlike the US authorities, the commission prefers to close cartel cases simultaneously with all groups involved rather than pursue one group at a time. The only other example of a hybrid settlement is an animal feed phosphate cartel late in 2010, where all but one company settled.The main incentive to settle a cartel under EU rules is the 10 per cent reduction in fines and a shorter and less detailed charge sheet, which limits the potential for private damages claims. Those holding out can fight the charges in hearings organised by the commission and eventually appeal against any decision in the courts.
The hybrid deal, however, reduces the advantages from settling early. Brussels must still devote resources to completing its investigation of the holdouts and defending any decision in the courts. The full decision will also include a fuller assessment of facts, providing extra ammunition for private lawsuits against groups that settled as well.
Philip Hampton, RBS chairman, said the settlement was a sobering reminder of past failings: "We acknowledged back in February that there were serious shortcomings in our systems and controls on this issue, but also in the integrity of a very small number of our employees."
Citi said it was "pleased" that the commission's investigation was over while Deutsche Bank said it had invested €1bn in improving its compliance and did not need to make extra provisions.
Additional reporting by Daniel Schafer in London
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