rediff.com

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  

Rediff News  All News 
Rediff.com  » Business » World's major banks find themselves in new trouble

World's major banks find themselves in new trouble

July 03, 2013 08:15 IST

World's major banks find themselves in new trouble

     Next

Next
Dominic Elliott in London


Bank executives and investors weren't looking for another reason to fret. But they have one - a European Commission accusation that 13 banks, plus derivatives trade body ISDA and data provider Markit, colluded illegally for three years to stop two exchanges from breaking into the credit default swaps market.

The industry has long said that these accusations are groundless. Exchanges, they say, need more volume than the CDS market can provide to set fair prices. Investment banks dominate the market because only they have the requisite knowledge.

Click NEXT to read more...


Image: Bank of America Merrill Lynch in Singapore.
Photographs: Tim Chong/Reuters

     Next

World's major banks find themselves in new trouble

Prev     Next
Prev

Next

But the argument is a bit circular. OTC transactions are often based on data collected by Markit, which is part-owned by several banks; ISDA, which provides rules for the market, is governed by the industry.

If the market's suppliers were not under the banks' control, exchanges might be able to thrive. Banks' share prices barely moved in response to the Commission's statement, perhaps because charges were expected and perhaps because the direct financial damage is unlikely to be large.

Click NEXT to read more...


Image: Barclays headquarters in the Canary Wharf business district of east London.
Photographs: Neil Hall/Reuters

Prev     Next

World's major banks find themselves in new trouble

Prev     Next
Prev

Next

If the charges cannot be rebutted - it may take three years to find out - any fines are likely to be a tiny fraction of the potential maximum of 10 per cent of revenue. The indirect damage could be larger. CDS is a big market with a notional value last year of more than $20 trillion and cleared transactions of $2.5 trillion, according to the Bank for International Settlements.

And it is almost all OTC, despite regulators' best efforts to force all varieties of derivatives onto exchanges. A move to exchanges would presumably make the business less lucrative for banks.

Click NEXT to read more...


Image: Bear Stearns headquarters in New York.
Photographs: Shannon Stapleton/Reuters

Prev     Next

World's major banks find themselves in new trouble

Prev     Next
Prev

Next

Markit, which first built its business as a font of CDS data, has a particular problem. Its bank investors are among the shareholders planning a public listing that could value the company at up to $5 billion. They may have to wait until the legal fog clears.

The largest indirect damage could be reputational, even if no embarrassing emails surface. The Commission's complaint amounts to a claim that the banks put their own interests well ahead of their clients'. That sounds depressingly familiar.

Click NEXT to read more...


Image: Paris headquarters of BNP Paribas.
Photographs: Mal Langsdon/Reuters

Prev     Next

World's major banks find themselves in new trouble

Prev     More
Prev

More

Context news

i) European Union regulators on July 1 charged financial data company Markit, the International Swaps and Derivatives Association and 13 banks with breach of EU antitrust rules for their efforts to block exchanges in the credit derivatives business. The European Commission said it had sent the companies a statement of objections, which sets out suspected anti-competitive activities.

ii) The charges followed a two-year investigation. The banks charged are Bank of America Merrill Lynch, Barclays, Bear Stearns, BNP Paribas, Citigroup, Morgan Stanley, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, RBS and UBS.

iii) The companies can reply in writing to the charges and request an oral hearing to present their comments on the case in front of European Commission representatives and national competition authorities.


Image: Morgan Stanley's New York headquarters at the corner of 48th Street and Broadway in New York.
Photographs: Andrew Burton/Reuters

Prev     More
Source:
© Copyright 2013 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.