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Eight Banks Targeted in EU Cartel Probe of Euro-Bond Trading

Eight Banks Targeted in EU Cartel Probe of Euro-Bond Trading

(Bloomberg) -- Eight banks are being targeted in a European Union probe that alleges traders colluded to acquire and trade euro government bonds, a month after the EU regulators implicated lenders in a separate bond-trading case.

The European Commission didn’t identify the banks being investigated for "a collusive scheme that aimed at distorting competition" for trading sovereign bonds issued by eurozone governments from 2007 to 2012.

"Traders employed by the banks exchanged commercially sensitive information and coordinated on trading strategies" mainly via online chatrooms, the EU authority said in an emailed statement.

The EU’s antitrust chief, Margrethe Vestager, is moving her attention to possible collusion between banks in the estimated $9.4-trillion market for European government debt. She’s already extracted huge fines from Google and a massive back-tax bill from Apple Inc. before she ends her five-year term later this year. While the EU’s powerful antitrust arm often lags far behind financial authorities in the U.S. and the U.K. in punishing collusion between traders, its fines can be hefty.

Three Probes

The euro government bond probe is the third EU investigation that may see large fines for banks. The EU last month sent objections to Deutsche Bank AG, Credit Suisse Group AG and Credit Agricole SA over a cartel dealing in secondary trading of supranational, sub-sovereign and agency bonds denominated in dollars. Credit Suisse was also targeted over a foreign-exchange cartel last year that other banks are seeking to settle, which can reduce potential penalties.

Traders swapping information on trading positions and future Libor submissions led to banks racking up 1.49 billion euros ($1.7 billion) in antitrust fines in 2013.

EU probes don’t always lead to fines. More than a dozen banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. escaped penalties in 2015 when the EU dropped a four-year investigation into suspicions they conspired to shut exchanges out of the credit-default swaps market.

Euro-denominated sovereign bonds are fixed-coupon securities, issued by central governments. According to the Bank for International Settlements website, total government debt outstanding in the euro area was around $9.4 trillion as of the second quarter of last year.

The bonds are traded mostly across electronic platforms, with major investment banks, including Citigroup Inc., JPMorgan Chase & Co., Bank of America Merrill Lynch and Deutsche Bank among the most active participants.

Japan’s antitrust authority last year found Deutsche Bank and Bank of America Corp. employees colluded over a trade of a European Investment Bank bond. A year earlier it warned Deutsche Bank’s Japanese brokerage unit after it determined that a trader colluded with a counterpart at Citigroup Inc. on European sovereign bond transactions. Citigroup didn’t receive a warning.

In November, the U.K. Competition and Markets Authority opened a surprise investigation into “suspected anti-competitive arrangements” in the financial sector, saying it was gathering information on the suspected collusion but giving few further details. It’s investigating companies’ conduct in relation to certain types of financial products.

Getting a statement of objections from the EU is usually a precursor to potential fines. Companies can seek to argue their defense in writing or at an oral hearing but it is rare for the EU to drop a case or avoid levying fines for cartel behavior after it sends the formal complaint.

(An earlier version of this story was corrected to fix the name of Citigroup Inc.)

--With assistance from Gaspard Sebag and Kaye Wiggins.

To contact the reporter on this story: Aoife White in Brussels at awhite62@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser

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