Update 2 – Back in the NGEU game: EU welcomes banks back into the fold

6 min read
Helene Durand

Eight of the 10 banks barred from pitching for the European Union's NextGenerationEU funding programme have been allowed back into the process, according to the European Commission – just days after they were told they had been banned from underwriting deals from the €800bn programme.

The institutions that have been reinstated for future bond transactions are Nomura, UniCredit, Credit Agricole, JP Morgan, Citigroup, Barclays, Bank of America and Deutsche Bank, a commission source said.

The issuer, rated Aaa/AA/AAA, is expected to bring its second NGEU deal shortly, after it sent a request for proposals on Friday morning for a new trade to be "executed in the coming weeks".

"These eight have also been included in today's RFP for the next NGEU borrowing operation," the source said.

The news will come as a considerable relief for the banks involved as they will now be able to bid for EU business again and stake a claim on the millions of fees that will be paid out in the coming years. Lead managers on this week's debut NGEU bond – a €20bn 10-year – were paid €20m.

The commission said it had undertaken a full assessment of the banks involved before making its decision.

“After a thorough analysis taking into consideration the remedial measures applied by the concerned institutions and in accordance with the proportionality principle, the Commission has now concluded its assessment for eight of the 10 primary dealers members that provided the requested information. The eight banks have provided information that allow the Commission to conclude that their further exclusion from participation in syndicated transactions in EU bond issuances is not warranted," the commission said in a statement.

"They were informed on June 18 that they are henceforth eligible for consideration as potential syndicate members for EU borrowing operations.”

The banks that had been banned did not receive the RFP for the first NGEU trade, which priced on Tuesday to an enthusiastic reception with books closing at more than €142bn. All 10 banks had been found guilty of various transgressions related to breaching antitrust rules and manipulating foreign exchange markets.

Sources said that the eight banks had convinced the commission, which handles the EU's borrowing, that they had put in place measures to ensure that past misbehaviour will not be repeated, despite the short timeframe and the detailed information required. NatWest Markets and Natixis are still excluded but are engaging with the commission to outline the remedial measures they have taken.

"[The EC] were asking for very detailed information, some of which went back years, so it can be very time-consuming," a source familiar with the process said. "I guess you could have done a sworn statement saying your house is in order ... But you really have to make sure that is the case, and that can take time."

Another source said the process was heavy on procedure. "It's really time-consuming and not a simple box-ticking exercise and as soon as you get legal departments involved, it just gets more complicated," he said. The specific transgressions may also have played a part in deciding which banks could quickly get back in the EC's good books.

The banks declined to comment.

Harsh move

For many market participants, the EC's initial ban not only came out of the blue but was also seen as unreasonable given that the offences took place several years ago – in some cases preceding the global financial crisis. They added that banks had already been punished and considered the matters settled, given that the banks had paid fines and been under close scrutiny by regulators since.

"Most of these things happened a long time ago," a funding official at a supranational said. "Once a bank has paid a fine, it should be OK. Why punish them for the same thing a second time?"

He was also puzzled by the fact that Deutsche, Natixis and NatWest were included on the banned list yet were on a previous EU trade – the last from the SURE programme – that emerged after the most recent fines were handed out.

"You want to have the best banks working on these trades and you could argue maybe one or two of the banks on the first deal maybe weren't the strongest in that sector," he said.

IMI-Intesa Sanpaolo, one of the lead managers on the debut NGEU trade is number 14 in the euro sovereign league table and number 16 in the supranational bonds in euros. BNP Paribas, DZ Bank, HSBC, and Morgan Stanley were the joint lead managers on the transaction and rank higher in the sovereign and supranational league tables.

IFR exclusively reported on June 11 that banks that had been previously found guilty of breaching antitrust rules had been barred from arranging syndicated deals for the NGEU programme. The ban concerned banks involved in a US dollar SSA cartel but also cartels in primary and secondary markets for European government bonds, as well as a foreign exchange spot-trading cartel. The latter involved Barclays, JP Morgan and Citigroup, among others, and saw the banks fined €1.07bn.

Adds full list of reinstated banks, comments