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Exclusive: EU to fine Deutsche, JPMorgan and others in rate probe - source

A logo of the Royal Bank of Scotland (RBS) is reflected in the window of a branch office in London November 1, 2013. REUTERS/Luke MacGregor
A logo of the Royal Bank of Scotland (RBS) is reflected in the window of a branch office in London November 1, 2013. REUTERS/Luke MacGregor

By Foo Yun Chee

BRUSSELS (Reuters) - EU antitrust regulators are set to fine six global banks including Deutsche Bank, JPMorgan and HSBC after an investigation into the 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 (RBS), Credit Agricole and Societe Generale, represent the first punishments from Brussels as a result of its inquiry and are the latest costly payouts for an industry struggling to draw a line under past misdeeds.

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) of financial contracts, ranging from Spanish mortgages to complex derivatives.

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

The penalties relate only to manipulation of Euribor. Banks suspected of rigging the London interbank offered rate, or Libor, could be fined next month when the Euribor penalties are announced, the source said.

Some of the banks have agreed a settlement with the Commission that would bring a 10 percent reduction in their fines, the source added.

Such settlements, which can prevent cases from dragging on for several years, typically involve companies admitting to wrongdoing.

Several of the banks will not be fined immediately because 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, one of the people said.

RBS, Deutsche Bank, Societe Generale, JPMorgan and HSBC declined to comment. Credit Agricole was not immediately available to comment. Commission spokesman for competition policy, Antoine Colombani, also 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.

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 euros and Credit Agricole's 16.3 billion euros. JP Morgan's revenue was $97 billion.

COSTLY MISDEEDS

The cost to banks could also mount if investors who believe they have lost money because of rate manipulation use the settlements to sue for damages.

Stephen Critchley, a senior associate at UK law firm Collyer Bristow, said that if banks admit liability as part of a settlement it could open them up to being sued. "They stand to lose more than just the fines," he said.

An English court is already considering whether attempted manipulation of Libor can invalidate loans and other contracts or show that banks mis-sold products that were based on the rate.

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 face criminal charges.

Globally, the cost to banks of cleaning up past misdeeds is expected to soar to about $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 euros.

EU Competition Commissioner Joaquin Almunia said in April that he expected to issue decisions on the interest rates cases by the end of the year to help the market to 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 an investigation into credit derivatives involving 13 top investment banks including Citigroup, Goldman Sachs, financial data company Markit and the International Swaps and Derivatives Association (ISDA).

($1 = 0.7402 euros)

(Additional reporting by Steve Slater and Kirstin Ridley in London, Thomas Atkins in Frankfurt, Matthias Blamont in Paris and David Henry in New York; Writing by Luke Baker and Carmel Crimmins; Editing by David Holmes and David Goodman)

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