On Wednesday, JPMorgan Chase and Citigroup became the first U.S. banks fined for the alleged manipulation of benchmark interest rates that affect hundreds of billions of dollars in contracts around the world, including credit cards and mortgages.
The European Commission slapped six financial giants, including Deutsche Bank and Royal Bank of Scotland, with $2.3 billion total in penalties for allegedly colluding to rig European and Japanese interest rates for profit.
The commission, the executive arm of the European Union, is one of several regulators around the world examining the manipulation of key interest rates such as the London interbank offered rate, known as Libor.
In the United States, the Commodity Futures Trading Commission has penalized four European banks — RBS, Barclays, UBS and Rabobank — for their role in the scheme, but the agency, along with the Justice Department, is investigating domestic banks.
Each of the cases that have been settled so far revealed a corporate culture in which traders bragged about the plots in e-mails and Internet chat rooms. Authorities say the latest cases illustrate more of the same brazen disregard for the law.
Between 2005 and 2008, traders at the banks conferred on data submissions for the calculation of the Euro Interbank offered rate, or Euribor, as well as their trading and pricing strategies, the commission said. A similar scheme was afoot in Japan, where traders at many of the same banks conspired to manipulate rates to benefit their bottom line from 2007 to 2010.
“What is shocking about the Libor and Euribor scandals is not only the manipulation of benchmarks . . . but the collusion between banks who are supposed to be competing with each other,” said Joaquin Almunia, the E.U.’s competition commissioner.
For its part, JPMorgan’s portion of the settlement, $108 million, covers only allegations relating to the manipulation of the Japanese benchmark rate. The bank, along with HSBC and Credit Agricole, maintains its innocence in the Euribor case.
In a statement, JPMorgan said, “The settlement makes no finding that JPMorgan Chase management had any knowledge or involvement in the conduct at issue, or that the traders’ actions had any impact on the firm’s Libor submissions or the published Libor rates.”
Citigroup, meanwhile, agreed to a $95 million fine for its participation in the Japanese scheme. It received full immunity for one of the violations by cooperating with authorities, avoiding an additional $74 million fine.
“We’re pleased to resolve this matter with the European Commission and to put this investigation behind us,” said Danielle Romero-Apsilos, a bank spokeswoman. “Citi continues to cooperate with other regulators in connection with investigations.”
The two U.S. banks paid the lowest fines and had the fewest traders tied to the scheme.
Deutsche Bank, which is still under investigation by U.S. and British regulators, received the highest fine, $633 million. Its chief executive, Juergen Fitschen, said the charges stem from “past practices of individuals which were in gross violation of Deutsche Bank’s values and beliefs.”
Swiss powerhouse UBS avoided a $3.3 billion fine; Barclays dodged a $937 million fine for revealing the scheme’s existence.
Barclays was the first bank to admit its role in rigging the rates in June 2012, when it agreed to pay $450 million to settle allegations. UBS followed its lead that December by reaching a $1.5 billion settlement with global authorities, which included the indictment of two of its traders and a guilty plea by its Japanese subsidiary.
The CFTC accused Barclays senior management and numerous traders in London, New York and Tokyo of making false reports to improve the bank’s trading position beginning in 2005. At the height of the recession, the bank attempted to keep rates down and deflect public scrutiny about its condition.
About a dozen financial institutions, including Barclays and JPMorgan, submit data to set the daily Libor rate. Until recently, that information was collected on behalf of the British Bankers’ Association by Thompson Reuters, which calculates the averages and devises the rate.
In July, the association transferred the administration of the benchmark to NYSE Euronext to restore integrity to the system. Critics of the system, however, remain skeptical about the transparency in how banks set daily rates, questioning whether it leaves the process open to fraud.