UBS, Barclays Dodge $4.3 Billion EU Fines for Rate Rigging
Comment of the Day

December 04 2013

Commentary by Eoin Treacy

UBS, Barclays Dodge $4.3 Billion EU Fines for Rate Rigging

This article by Elena Logutenkova for Bloomberg may be of interest to subscribers. Here is a section: 

UBS AG, Switzerland?¡¥s biggest bank, and Britain?¡¥s Barclays Plc escaped $4.3 billion in European Union antitrust penalties, vindicating their strategy to reveal to the watchdog collusion to rig benchmark interest rates.
UBS, based in Zurich, dodged a 2.5 billion-euro ($3.4 billion) fine, while London-based Barclays avoided a 690 million-euro penalty, the European Commission said in a statement today. Six companies were fined a record 1.7 billion euros for rigging euro and yen interest rate derivatives.

Offering leniency to companies that are first to bring collusion to light is the ?¡ãmain and most effective tool to detect illegal cartels,?¡À the Brussels-based European Commission said. As regulators in the U.K., Switzerland, the U.S. and Asia also investigate potential attempts to rig the $5.3 trillion-a-day foreign exchange market, the prospect of avoiding or reducing fines may spur a rush to cooperate, said Christopher Wheeler, an analyst at Mediobanca SpA in London.

"In the case of foreign exchange, you may have noticed that all the banks have been very, very active in trying to get in front of the regulators as quickly as possible, "A Wheeler said in an interview on Bloomberg Television today. "Obviously they see the benefits of actually cooperating."

Eoin Treacy's view

In the aftermath of any crisis there is always increased appetite for closer regulation. Inevitably, in such circumstances, greater scrutiny results in revelations of wrong doing. The cartel that helped set rates in the foreign exchange has been punished but it is difficult to eliminate such actions since the interests of investment banks are often at odds with the buy side represented by pension and fund managers as well as corporate treasury departments. 

Measures such as Dodd Frank highlight the fact that more regulation is not necessarily good regulation but it is symptomatic of the political desire to be seen to be doing something and to ensure the transgressions of the past are not repeated. In this regard regulation tends to be just as cyclical as markets 

Barclays and UBS have been relatively unaffected by this news but neither is remarkable for its outperformance and both has been underperforming the European sector. The appreciation that a significant number of European banks will not be allowed to disappear and will be supported by continued ECB largesse is a much more important issue from the perspective of investors.  


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