Banks Win U.S. Judge's Approval of $1.87 Billion CDS Accord

  • Goldman Sachs, JPMorgan and others agreed to deal in September
  • Banks unfairly made billions in opaque market, investors said

Banks including Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc. and HSBC Holdings Plc won a judge’s approval of a $1.87 billion settlement to resolve allegations they conspired to limit competition in the lucrative credit-default swaps market.

U.S. District Judge Denise Cote in Manhattan granted final approval to the settlement on Friday. The accord was disclosed in court in September.

“This is a substantial settlement,” said Cote, who added that she found the agreement to be fair, adequate and reasonable. “All of us want to live in a country where the laws are respected and where the markets are places where investors can have confidence.”

The settlement with the banks followed years of litigation by hedge funds, pension funds, university endowments, small banks and other investors, who sued as a group. They alleged that a dozen global banks -- along with Markit Group Ltd., a market-information provider in which the banks owned stakes -- conspired to control the information about the credit-default swap market in violation of U.S. antitrust law.

The 12 banks which were sued “made billions of dollars in supracompetitive profits” by taking advantage of “price opacity” in the CDS market, the investors said.

13,000 Investors

The settlement covers about 13,000 investors, lawyers said in court. Of those, only three urged the judge to reject the deal, the lawyers said. More than 1,300 class members will get payments of more than $100,000 each and more than 230 will receive more than $1 million apiece as a result of the accord, the judge said Friday.

The credit default swaps market was worth $16 trillion as of the end of 2014, according to the Bank for International Settlements. The instruments are used as a hedge against the possibility of a borrower default. Although the contracts trade frequently and fluctuate like stocks or bonds, the market is opaque.

In court papers, the banks said there was no antitrust conspiracy. They argued that members of the group supported proposals to increase competition in the CDS market and that there’s little actual demand for exchange trading of the contracts.

Collusion Claim

They persuaded Cote in September to throw out a claim that they colluded to monopolize CDS trading.

In granting her approval of the accord, Cote said the case would have had to go through protracted litigation and a trial.

Some of the alleged behavior occurred before the Dodd Frank Act of 2010, which regulated the CDS market for the first time, including measures to make the market more transparent and less risky.

Cote on Friday also approved $253.7 million in attorney fees as well as $9.5 million in expenses.

Other defendants in the suit were Bank of America Corp., Morgan Stanley, Credit Suisse Group AG, Deutsche Bank AG, Barclays Plc, UBS Group AG, Royal Bank of Scotland Group Plc and BNP Paribas SA.

The case is In Re Credit Default Swaps Antitrust Litigation, 13-md-02476, U.S. District Court, Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal. LEARN MORE