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Europe whacks UBS, Nomura, and UniCredit with $450M in fines over bond-market cartel

May 20, 2021, 1:12 PM UTC

Nomura, UBS, and UniCredit have been fined a total of €371 million ($452 million) by the European Commission, for illegally acting as a cartel in the European government bond markets between 2007 and 2011, at the height of the financial crisis.

Switzerland’s UBS got the biggest fine, of €172.4 million. Japan’s Nomura has to cough up €129.6 million, and Italy’s UniCredit €69.4 million.

Bank of America and Natixis also participated in the collusion, but got off without fines because they left the cartel more than five years before the European Commission started investigating it, the Commission said Thursday.

NatWest (known at the time as the Royal Bank of Scotland Group, or RBS) would have been fined around €260 million for its participation, but got full immunity for blowing the whistle. Meanwhile, the German financial institution Portigon (which emerged from the ashes of WestLB, the relevant bank to the investigation, in 2011) escaped a €4.9 million fine because it didn’t generate any net turnover in the last business year, and the Commission’s antitrust fines are capped at 10% of annual turnover.

However, the banks could now also find themselves having to pay damages to people and companies that were affected by their anticompetitive behavior, as the Commission’s decision against them constitutes binding proof of the illegal activity.

Exchanging information

According to the Commission, the seven banks’ traders mainly colluded through chatrooms on Bloomberg terminals, regularly exchanging commercially sensitive information and discussing their bidding strategies ahead of auctions of Euro-denominated bonds. They also updated one another on trading parameters on the secondary market for the bonds.

“A well-functioning European government bonds market is paramount both for the Eurozone member states issuing these bonds to generate liquidity and the investors buying and trading them,” said Competition Commissioner Margrethe Vestager in a Thursday statement.

“Our decision against Bank of America, Natixis, Nomura, RBS, UBS, UniCredit and WestLB sends a clear message that the Commission will not tolerate any kind of collusive behavior. It is unacceptable, that in the middle of the financial crisis, when many financial institutions had to be rescued by public funding, these investment banks colluded in this market at the expense of EU member states.”

Both RBS/NatWest and WestLB/Portigon received government bailouts during the financial crisis.

Prominent scalps

UniCredit said it will appeal its fine, and Nomura and UBS both indicated they are considering similar moves.

For Commissioner Vestager, the fines give her several prominent scalps just days after the EU’s General Court struck down her antitrust ruling over Amazon and its tax dealings with Luxembourg officials. Echoing Vestager’s embarrassing defeat last year over Apple’s Irish tax arrangements, the court said last week that Amazon would not have to pay $303 million in back taxes to the Luxembourg tax office, as the Commission had not proven the Big Tech firm got any preferential treatment.

BofA may have escaped a fine this time, but its multinational investment banking division got whacked with a €12.6 million Commission penalty last month, over its very similar participation in another government bonds market cartel. The Commission found that Bank of America Merrill Lynch, Crédit Agricole, Credit Suisse and Deutsche Bank all colluded in the secondary trading market for supra-sovereign, sovereign and agency (SSA) bonds denominated in U.S. dollars—that time round, it was Deutsche Bank who escaped without a fine because it blew the whistle.

A couple years ago, the Commission also issued a total of €1.07 billion in fines for banks that participated in a foreign-exchange spot-trading cartel, including Barclays, RBS, Citigroup, JPMorgan and MUFG Bank. On that occasion, it was UBS that exposed the cartel and walked away sans fine.

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