Seven Banks Said to Be Focus of Mexico Bond Collusion Probe

  • Citi, HSBC, BBVA, BofA, Barclays said to be among those probed
  • Investigation centers on $400 billion local bond market

Mexican authorities have zeroed in on seven banks, including three from the U.S., as part of a widening investigation into price manipulation in the nation’s bond market, according to a person with knowledge of the matter.

Local units of Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, JPMorgan Chase & Co., HSBC Holdings Plc, Barclays Plc, Citigroup Inc. and Bank of America Corp. have become the focus of the probe, according to the person, who asked not to be identified because the information is private. None of the banks has been accused of wrongdoing.

The investigation, first made public April 19 in an attempt to attract informants, threatens to upend trading in Mexico’s $400 billion market for local bonds from government entities. At issue is whether players known as market makers, which buy the notes at auctions, colluded in order to suppress prices. The probe follows long-running cases over interest-rate rigging in the U.K. and after U.S. prosecutors in January charged workers from some of the world’s biggest banks with conspiring to coordinate trading of dollars and euros to manipulate prices.

Some of the banks have already received requests for information related to Mexico’s investigation, which could also extend to other participants in the primary and secondary bond markets, the person said. One institution has agreed to cooperate with the probe in exchange for a lighter punishment, according to two people familiar with the matter.

Cofece, as the antitrust regulator is known, hasn’t publicly identified the banks under investigation, but said in April that the damage to public finances from the alleged manipulation could be “serious.” By suppressing prices, buyers would be able to get higher yields on the bonds, making interest payments more expensive for the borrowers.

The probe comes weeks after Cofece fined the country’s biggest pension funds as well as 11 individuals for colluding to make it difficult for clients to transfer their accounts.

JPMorgan spokeswoman Tasha Pelio, Bank of America spokesman Bill Halldin, Barclays spokesman Marc Hazelton and HSBC spokeswoman Lyssette Bravo declined to comment on the investigation or say whether their banks had been contacted by authorities. Press offices of Citibanamex, BBVA and Santander Mexico also declined to comment.

Cofece’s highest fine for monopolistic practices is 10 percent of a company’s annual income, a limit that likely means the damage from the market manipulation may be much larger than any penalty the government would collect. Individuals found colluding could face from five to 10 years in prison.

Finance Minister Jose Antonio Meade told reporters on Tuesday the ministry has not been provided with details of the investigation and is willing to cooperate.

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