Banks Finalize $1.86 Billion Credit-Swaps Settlement
Suit claimed banks conspired to prevent competition
Wall Street’s biggest banks have agreed to pay $1.86 billion to settle accusations that they conspired to prevent competition in the credit-derivatives markets, according to plaintiff lawyers in the private lawsuit.
Twelve banks and two industry groups have finalized the swaps settlement, according to a statement by the plaintiffs’ law firms Quinn Emanuel Urquhart & Sullivan LLP and Pearson, Simon & Warshaw LLP. That sum was slightly lower than the $1.87 billion settlement that had been tentatively agreed a few weeks ago, as earlier reported by The Wall Street Journal.
The case represents the latest headache for banks still reeling from regulatory actions and private lawsuits alleging they rigged markets ranging from interest-rate benchmarks and foreign exchange to the price of precious metals. Those cases have resulted in billions of dollars in fines.
Credit derivatives are contracts that allow users to speculate or hedge against a corporate or sovereign debt default. When a borrower defaults, the contracts compensate buyers. At the end of 2014, the Bank for International Settlements said the credit-default-swaps market was $16 trillion, down from $58 trillion at the end of 2007.
The defendants didn’t admit fault in the civil case, said Daniel Brockett, partner at Quinn Emanuel, in an interview. The case was originally filed in 2013, but is now in a federal district court for the Southern District of New York, where Mr. Brockett said it would be certified for class-action status as part of the settlement.
As a result, between 9,000 and 12,000 institutions can put in claims based on the amounts of credit swaps they had traded, Mr. Brockett said. The plaintiffs included the Los Angeles County Employees Retirement Association, Salix Capital U.S. Inc., Value Recovery Fund LLC and the Essex Regional Retirement System.
The statement from the plaintiff lawyers called the settlement agreement “one of the largest recoveries ever for plaintiffs in an antitrust class action.”
The credit-derivatives lawsuit centered on whether the defendants coordinated their efforts to delay or prevent exchanges from trying to put the swaps contracts onto open, regulated platforms where prices would be more transparent.
The defendant banks are: Bank of America Corp., Barclays PLC, BNP Paribas SA,Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc.,HSBC Holdings PLC, J.P. Morgan Chase & Co., Morgan Stanley, Royal Bank of Scotland Group PLC and UBS Group AG.
Spokespeople for the defendant banks declined to comment. The banks previously denied the accusations contained in the lawsuit.
The defendant industry groups are the International Swaps and Derivatives Association and Markit Group Ltd.
A Markit spokesman declined to comment. A spokesman for ISDA reiterated an earlier statement that the group was “pleased the matter is close to resolution” and that it “remains committed to further developing [credit derivatives] market structure to ensure the market functions safely and efficiently.”
As part of the agreement, ISDA will overhaul a committee that oversees how it licenses its proprietary information about credit-default swaps, according to the plaintiff lawyers’ statement. They said this should help to open up the market to competition.
The U.S. Department of Justice and European Commission also have been investigating the credit-derivatives markets for anticompetitive practices. The Justice Department probe, which dates back to 2009, hasn’t resulted in any charges. In 2013, the European authorities accused banks of colluding to prevent competitors from entering the market. Both probes are ongoing.
Source: WSJ – Banks Finalize $1.86 Billion Credit-Swaps Settlement
