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EU to fine Deutsche, JPMorgan in rate probe: Source

Tuesday, 5 Nov 2013 | 11:20 AM ET
Adam Jeffery | CNBC

EU antitrust regulators are set to fine six global banks including Deutsche Bank, JPMorgan and HSBC for suspected rigging of benchmark euro zone interest rates, a person familiar with the matter said on Tuesday.

The penalties, which will also target Royal Bank of Scotland, Credit Agricole and Societe Generale, represent the first punishment meted out by Brussels in a global probe and represent another costly payout for an industry struggling to put past misdeeds behind it.

The move comes two years after the European Commission, the EU's antitrust authority, raided a number of banks for suspected fixing of Euribor, a benchmark used as the basis for pricing 250 trillion euros ($338 trillion) worth of financial contracts, from Spanish mortgages to complex derivatives.

(Read more: Euribor faces wind-up as banks distance themselves from benchmark

Barclays, which alerted the European Commission to the suspected wrongdoing, will not be fined, the source said.

The penalties only relate to alleged manipulation of Euribor. Another group of banks suspected of rigging the London interbank offered rate (Libor) could be fined next month, when the Euribor penalties are announced, the source said.

(Read more: Fannie Mae sues nine banks over Libor)

Some of the banks had agreed to settle with the Commission in exchange for a 10 percent reduction in their fines, the source added.

Several of the banks will not be fined immediately as they are contesting the size of the proposed penalties. HSBC, Europe's largest bank, is one of those, two sources said. In these cases, the banks are likely to face formal charges next month, followed by fines next year, the source said.

Commission spokesman for competition policy, Antoine Colombani, declined to comment.

The EU can impose fines of up to 10 percent of a company's global revenue for breaches of antitrust rules. In this case, the fines are likely to be towards the low end of the scale, the source said. However, since all the banks have revenues of at least 16 billion euros a year, even a 1 percent fine would result in hundreds of millions of euros in penalties.

Costly misdeeds

HSBC generated revenue of $63.5 billion last year, while RBS's total was 25.8 billion pounds, Societe Generale's was 23.1 billion euros, Deutsche Bank's 33.5 billion and Credit Agricole's 16.3 billion euros. JPMorgan's revenue was $97 billion.

RBS, Deutsche Bank, Societe Generale, JP Morgan and HSBC declined to comment. Credit Agricole was not immediately available to comment.

Authorities in the United States, Britain and elsewhere have so far fined five financial firms, including RBS and Barclays, $3.7 billion for manipulating Libor and its Euribor cousin. Seven individuals have been criminally charged.

(Read more: Germany Probes Deutsche Bank Over Euribor)

Globally, the cost to banks of cleaning up past misdeeds is expected to soar to around $125 billion if JPMorgan agrees a $13 billion deal with the U.S. Justice Department over its mortgage business.

This earnings season, several banks set aside more money to cover the seemingly relentless rise in the cost of fines, lawsuits and compensation.

Deutsche Bank booked 1.2 billion euros in legal costs in the third quarter of 2013 alone, wiping out profit for that period and taking its total legal provisions to 4.1 billion.

EU Competition Commissioner Joaquin Almunia said in April he expected to issue decisions on the interest rates cases by the end of the year in order to help the market regain confidence in the benchmarks.

In addition to Euribor and Libor, the Commission is also investigating suspected rigging of interest rates linked to the yen (Tibor) and the Swiss franc.

It is also carrying out a probe into credit derivatives involving 13 top investment banks including Citigroup, Goldman Sachs, financial data company Markit and the International Swaps and Derivatives Association (ISDA).

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