JPMorgan to HSBC Face EU Rate-Rigging Fines From Almunia

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HSBC Holdings headquarters in Hong Kong. Close

HSBC Holdings headquarters in Hong Kong.

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Photographer: Jerome Favre/Bloomberg

HSBC Holdings headquarters in Hong Kong.

JPMorgan Chase & Co. (JPM) and HSBC Holdings Plc (HSBA) face a European Union complaint as soon as next month as the bloc’s antitrust chief races to fine a quartet of financial companies that snubbed rate-rigging settlements.

Joaquin Almunia, whose term ends on Oct. 31, is determined to punish the two banks as well as Credit Agricole SA (ACA) and interdealer broker ICAP Plc (IAP) before he leaves office, said three people familiar with the probe who asked not to be named because the process is private. To meet the target, he plans to send so-called statements of objections in the Euribor and Libor cases close to Easter, two of the people said.

“He will want to end on a high note,” Pierre-Henri Conac, a professor specializing in banking at the University of Luxembourg, said in an interview. “He’ll be happy to say: ‘I did it.’”

Almunia, 65, sees the fines as unfinished business after the four holdouts ruined his attempt to get a clean sweep of settlements in rate-rigging cases, part of a global scandal that tarnished the reputation of some of the world’s biggest lenders. The next seven months are the last chance for the former Spanish economist to burnish his legacy after he pledged to quit political life when he leaves the European Commission.

Photographer: Andrew Harrer/Bloomberg

Joaquin Almunia, competition commissioner for the European Union (EU). Close

Joaquin Almunia, competition commissioner for the European Union (EU).

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Photographer: Andrew Harrer/Bloomberg

Joaquin Almunia, competition commissioner for the European Union (EU).

Record Fines

Companies, including Deutsche Bank AG (DBK) and Royal Bank of Scotland Group Plc, that reached an accord with the commission admitted liability and agreed in December to pay a combined EU record 1.7 billion-euro ($2.4 billion) in penalties.

Anne-Sophie Gentil, a spokeswoman for Credit Agricole, declined to comment, as did HSBC’s Jezz Farr, JPMorgan’s Jennifer Zuccarelli and ICAP representatives.

ICAP’s shares declined 2.7 percent as of 2:50 p.m. in London trading after losing as much as 3.7 percent.

Antoine Colombani, Almunia’s spokesman, said by e-mail that the commission “continues to investigate” the financial firms. He declined to comment further.

Almunia was EU monetary-affairs commissioner before becoming the bloc’s antitrust chief. His move to the commission in 2004 revived a political career that had bottomed out when he led the Socialists to defeat against Spain’s conservative prime minister, Jose Maria Aznar, in elections in 2000.

During his term he has grappled with some of the world’s biggest companies from Google Inc. to OAO Gazprom. He also has overseen decisions on billions of euros of state guarantees to the EU’s banks at the height of the the financial crisis.

Still, he’s only fully presided over two cartel cases without a settlement that started with a statement of objections and ended in fines.

Three Years

The EU’s last major non-settlement case was initiated by Almunia’s predecessor, Neelie Kroes. It took three years to move from the complaint phase to wield fines in 2012 of 1.47 billion euros for producers of tubes used in televisions and computer monitors, including Samsung Electronics Co. (005930)

The EU’s complaint, or statement of objections, will detail the regulator’s view of each company’s infringement of antitrust rules. The parties would then have an opportunity to respond to these charges in writing and at a hearing.

Almunia’s plan “would require moving to a fine in record-time,” Adrien Giraud, a lawyer at Willkie Farr & Gallagher LLP, said. Even though it’s “technically doable” for the commissioner to meet his self-imposed deadline, it’s “better to avoid being wide open to criticism by speeding up the procedure in an unusual way.”

This could enable the parties to present this “as a case where ‘political’ interests took precedence over the strict application of law, which won’t do the commission any favors,” Giraud said.

Stumbling Block

One possible stumbling block for Almunia is that some of the four holdouts may raise confidentiality issues similar to those that dogged a probe into credit-derivatives trading by 13 of the world’s biggest banks, said two of the people.

The CDS case, which also targets JPMorgan and HSBC, was stalled after company lawyers demanded, and won, the right to see business secrets compiled by investigators.

“It’s hard to see any reason for the parties to help the commission” finalize the Libor and Euribor cases before its mandate ends, Giraud said. “To the contrary, they might hope for more goodwill from Almunia’s successor who would be passed down a file that’s already been put together in relation to an infringement that didn’t take place during his or her mandate.”

The London Interbank Offered Rate, or Libor, and Euribor, the Euro Interbank Offered Rate, gauge banks’ estimated cost of borrowing over different periods of time. Libor is the benchmark interest rate for more than $360 trillion of securities.

$6 Billion

Worldwide fines for rigging interest rate benchmarks reached $6 billion after the EU’s December settlements. Those fines may be the tip of the iceberg as global regulators added probes into manipulation of currency and commodities markets.

While Almunia has also started an informal investigation into revelations that traders may have conspired to fix currency markets, the final outcome will be in the hands of his successor.

JPMorgan is also involved in a parallel EU probe related to the Swiss franc Libor rate and is discussing an accord with antitrust officials, three people familiar with that case said in January.

The EU settlement procedure was introduced in 2008 as a way to speed up investigations. By doing a deal with the commission, companies get a discounted fine in return for saving the manpower-starved EU regulator the trouble of building up a complex case.

The non-settling quartet refused settlements for differing reasons. While JPMorgan settled the yen Libor probe, the biggest U.S. bank rebuffed a second settlement, saying it didn’t do anything wrong with respect to the Euribor benchmark.

Euribor Conspiracy

HSBC was reluctant to settle because its involvement in the Euribor conspiracy was marginal, according to one person. Admitting liability risked opening the floodgates to damages actions in the U.S., said another person.

Credit Agricole was also more concerned with the ramifications of settling rather than the size of the penalty -- between 20 million euros and 100 million euros -- it would have had to pay, the person said.

Unlike the three dropout banks, ICAP refused to enter into talks with the EU all along, the three people said. The commission failed to bring the interdealer broker into the fold of its yen Libor settlement after ICAP agreed to fines with U.S. and U.K. regulators in September, two people said.

ICAP, based in London, settled market manipulation allegations with the U.S. Commodity Futures Trading Commission and the U.K. Financial Conduct Authority because its day-to-day business depends on good relations with the financial watchdogs, unlike the antitrust agency, one of the people said.

“With the financial regulator one always negotiates as it has a life-and-death power over you,” Conac said. “It’s the cost of doing business.” Almunia, who can’t take licenses away, “doesn’t have the same bargaining power.”

To contact the reporters on this story: Gaspard Sebag in Brussels at gsebag@bloomberg.net; Aoife White in Brussels at awhite62@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net Peter Chapman

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