HSBC, JPMorgan and Credit Agricole fined €485 million for operating cartel to fix Euribor

HSBC and JPMorgan deny wrongdoing and are considering their legal options

PUBLISHED : Wednesday, 07 December, 2016, 8:47pm
UPDATED : Thursday, 08 December, 2016, 1:02pm

The European Commission has fined HSBC, Crédit Agricole and JPMorgan Chase a combined total of 485 million for participating in a cartel to fix the key Euribor pricing benchmark.

HSBC was fined 33.6 million, while JPMorgan Chase was fined 337 million, and Credit Agricole€was fined 114 million.

All three banks denied any wrongdoing, and said that they were considering their options.

The commission said that the cartel had operated between 2005 and 2008.

“The banks colluded on euro interest rate derivative pricing elements, and exchanged sensitive information, in breach of EU antitrust rules,” a statement from the European Commission said.

Commissioner Margrethe Vestager, who is in charge of competition policy, said: “A sound and competitive financial sector is essential for investment and growth. Banks have to respect EU competition rules just like any other company operating in the Single Market.”

The commission said that HSBC had participated in the cartel for one month as opposed to the five months of the other two banks.

We believe we did not participate in an anti-competitive cartel. We are reviewing the European Commission’s decision and considering our legal options
HSBC statement

An HSBC spokesman said in an emailed statement: “The European Commission’s decision relates to allegations of Euribor manipulation and related purported conduct during the course of one month in early 2007. We believe we did not participate in an anti-competitive cartel. We are reviewing the European Commission’s decision and considering our legal options.”

A JP Morgan spokesman said in an email: “We have cooperated fully with the European Commission throughout its five year investigation. We did not engage in any wrongdoing with respect to the Euribor benchmark. We will continue to vigorously defend our position against these allegations, including through possible appeals to the European courts.”

“Crédit Agricole firmly believes that it did not infringe competition law,” the bank said in an emailed statement. “Accordingly, it will appeal the Commission’s decision before the European courts.

Payment of the fine will not affect the 2016 financial statements given the provisions set aside previously.”

The European Commission said that seven banks had been involved in the cartel, but Barclays, Deutsche Bank, RBS and Société Générale had reached a settlement with the European Commission in December 2013. Fines totalling 820 million were levied on those four banks at that time.

HSBC, Crédit Agricole and JPMorgan Chase chose not to settle.

The Euro Interbank Offered Rate, or Euribor, is used as a reference for pricing financial products called interest rate derivatives.

According to the Bank for International Settlements, in June 2016, the worldwide gross market value of euro interest-rate over-the-counter derivatives represented US$ 6.40 trillion.

The benchmark is calculated daily and is based on the interest rates at which a a panel of European banks borrow funds from one another. Each day, banks submit a quote of a figure at which they would lend, and the highest and lowest 15 per cent of all the quotes collected are eliminated. The remaining rates are then averaged to create Euribor.

According to the European Commission, the traders participating in the cartel were in regular contact through corporate chat rooms or instant messaging services with the aim of distorting the normal course of pricing components for euro interest-rate derivatives. They did this by telling each other their desired or intended Euribor submissions and by exchanging sensitive information on their trading positions or on their trading or pricing strategies.

In response to a question from the media as to what was said in the chats, Vestager declined to give examples saying that the language was “so vulgar that it would make me blush”. She was speaking during a live-streamed press conference announcing the fines.

Banks have also been fined for manipulating the London interbank offered rate, or Libor. About US$9 billion in fines have been levied against a dozen banks by global authorities over the manipulation of Libor and similar benchmarks in the last four years and more than 20 traders charged, according to Bloomberg.

In 2014, the HKMA found evidence of misconduct in the submission of the Hong Kong interbank offered rate HIBOR rates by UBS, but said that there no evidence of collusion between banks to rig the HIBOR fixing.