The European Union is getting into the bank-fining act, imposing record penalties on six financial firms for their roles in the Libor case. It’s just the latest round of payments for many of these firms and ultimately their shareholders.
Here’s the Wall Street Journal story:
Six financial institutions were fined €1.71 billion ($2.32 billion) by European Union regulators Wednesday for colluding in an attempt to manipulate key benchmark interest rates, the EU’s largest-ever penalty in a cartel case.
The settlements involved penalties against some of the world’s biggest banks, including Deutsche Bank AG, Société Générale SA, Royal Bank of Scotland Group PLC and J.P. Morgan Chase & Co. The action brings to roughly €6 billion the total penalties levied by regulators against financial institutions in connection with probes into manipulation of the London interbank offered rate, or Libor, and other widely used financial benchmarks.
Further penalties are possible. The EU’s competition commissioner, Joaquín Almunia, said Wednesday at a news conference in Brussels that his office is pursuing cartel proceedings against several other large financial institutions, including the U.K.’s HSBC Holdings PLC and ICAP PLC and France’s Crédit Agricole SA, for their alleged roles in colluding to rig one or more rates. Regulators are also pursuing J.P. Morgan in connection with allegations other than those for which it was fined on Wednesday.
CNN Money’s story added this background and some context to the fines:
The scandal broke in the middle of 2012 when Barclays admitted trying to manipulate Libor, which together with related rates is used to price trillions of dollars of financial products around the world.
Wednesday’s announcement takes the global total of Libor-related penalties to almost $6 billion. A handful of traders have been charged with criminal offenses.
The EU fine is the latest blow to an industry trying to rebuild its reputation and finances in the wake of a series of legal battles over foreclosure abuses, misleading clients over mortgages, payment protection insurance and other products.
Some of the biggest banks are also facing a global probe into allegations that they manipulated foreign exchange benchmarks to profit at the expense of clients.
And the Libor story is not over yet. The European Commission is still going after HSBC, Credit Agricole and JP Morgan on related charges, and broker ICAP, who opted out of the settlement on yen Libor.
“We intend to defend ourselves vigorously,” an HSBC spokesman said.
The Telegraph led with fines on the Royal Bank of Scotland and then added in Barclays, focusing on the United Kingdom banks having to pay up:
Royal Bank of Scotland has been fined €391m (£324m) following a European Commission investigation into Libor-rigging that has seen eight major financial institutions hit with penalties totalling €1.7bn.
The taxpayer-backed lender settled with the European authorities over its attempts to manipulated European and Japanese interest rates, the second time this year it has been fined for its involvement in the scandal.
Barclays was found to have attempted to rig European rates, but avoided a fine of €690m because it had blown the whistle on the practice to the authorities.
In total, RBS and Barclays avoided more than €821m in fines from the EC because of their cooperation with the investigation.
Philip Hampton, the chairman of RBS, said in a statement: “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.
The New York Times piece brought up criticism of the European system by pointing out that they have limited abilities to enforce laws:
Unlike its American and British counterparts, the European Union has limited enforcement powers over financial firms, which are primarily regulated in their home markets or where they conduct the bulk of their business.
As a result, European Union antitrust authorities had to build a case based collusive conduct among a group of financial firms, rather than improper behavior by a single entity or group of traders at one bank.
To set the Libor and Euribor rates, banks submit the rates at which they would be prepared to lend money to one another, on an unsecured basis, in various currencies and varying maturities. Those rates are averaged, after the highest and lowest ones are eliminated, and that becomes that day’s rate.
The settlement was seen as a demonstration by European authorities that despite a reputation for excessive deference to banks, they, too, can come down hard on offenders.
“By European standards, it’s a large fine,” said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels. “It signals that the time when only the U.S. can impose big fines is probably over.”
But the settlement also highlighted Europe’s lack of a financial markets enforcer with powers similar to the Securities and Exchange Commission in the United States, including authority to pursue criminal charges.
What we haven’t really seen is a broad sell-off of financial stocks despite the fines they’re paying and will likely have to pay in the near future. For some of the largest banks, regulators are looking into everything from mortgage-back securities to credit cards. That’s a lot of uncertainty about when it will all be resolved and what the ultimate price tag will be. I’d like to see a story about why investors seem unconcerned about the continued legal issues.
