Banks fined for antitrust behaviour are barred from NGEU syndications

IFR 2387 - 12 Jun 2021 - 18 Jun 2021
4 min read
Helene Durand

Banks found guilty of breaching antitrust rules have been barred from arranging syndicated deals from the European Union's NextGenerationEU programme, shutting them out of the most lucrative new public sector issuance programme of recent years, in a move that could potentially affect as many as 10 top investment banks.

Those banks "will not be invited to tender for individual syndicated transactions", said a spokesperson for the European Commission, which borrows on behalf of the EU.

The debut syndicated NGEU deal is expected imminently after the EU outlined its funding plans for the rest of 2021 and unveiled the list of primary dealers that will help it raise up to €800bn by the end of 2026.

But while an impressive 39 banks made the cut to become primary dealers in NGEU debt, some will have to sit on the sidelines for syndications – by far the most profitable part of any issuance programme for banks – until further notice.

In a statement to IFR, a commission spokesperson said it had "implemented a strict approach to ensure that the entities with whom it works (from whom it procures services) are fit to be a counterparty of the EU and are, inter alia, not acting in breach of requirements on professional conduct or market integrity".

The commission would "therefore be undertaking a careful assessment of whether the primary dealers found guilty of breaching antitrust rules have taken necessary remedial measures to terminate these practices and are ready to undertake steps to avoid their recurrence. Pending the completion of this assessment, these institutions will be admitted to the primary dealer network but will not be invited to tender for individual syndicated transactions".

Depending on how long the assessment takes, banks concerned could miss out on millions in fees with an estimated €80bn of long-term bonds to be printed in 2021 alone. A debut deal of at least €11bn in size with a 10-year maturity is widely expected with the issuer paying 17.5bp in fees at that tenor.

In the EU's bad books

In 2016, IFR broke the news that four banks were being investigated by the US Department of Justice over market manipulation and operating a cartel in the market for sovereign, supranational and agency bonds.

This was only one of the investigations that followed, however, with various enquiries launched by regulators in the UK, the EU and the US that looked not just at a US dollar SSA cartel but also cartels in primary and secondary markets for European government bonds. In the EU, the investigations culminated with banks being fined earlier this year.

UBS, Nomura and UniCredit were fined a combined €371m last month for employing traders operating a cartel across seven investment banks beginning more than a decade ago in the primary and secondary markets for EGBs.

The commission said last month the seven banks participated in a cartel through a group of traders working on their EGB desks between January 2007 and November 2011. The other four banks involved were Bank of America, Royal Bank of Scotland (now NatWest Markets), Natixis and the now defunct WestLB, but they all escaped fines. UBS and WestLB are not on the EU's primary dealer list.

The May fine followed a €28.494m fine that was given the previous month by the EU to Bank of America, Credit Agricole and Credit Suisse for operating a cartel in the secondary trading of US dollar-denominated bonds within the European Economic Area.

Deutsche Bank was also charged but escaped a fine for acting as a whistleblower after it revealed, in August 2015, the existence of the cartel to the commission.

Deutsche, Natixis and NatWest Markets were involved in the cartel but not fined. They were among the banks who arranged the most recent EU trade (from its SURE programme), along with Morgan Stanley and LBBW.

Credit Suisse is another bank not on the EU's primary dealers list as it has dropped out of that business.

BofA, Credit Agricole, Credit Suisse, Deutsche, Nomura, NatWest, UBS and UniCredit declined to comment. Natixis did not respond to a request for comment.