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UBS, Nomura (NMR) to Pay Penalty to Settle Bond-Rigging Claims

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UBS Group AG (UBS - Free Report) , Nomura Holdings, Inc. (NMR - Free Report) and UniCredit have been penalized a total sum of $452 million by the European Commission for colluding to manipulate the European government bond market between 2007 and 2011.

Along with UBS, Nomura and UniCredit, four other banks have been accused of wrongdoing. The other defendants are Bank of America Corporation (BAC - Free Report) , Natixis, NatWest Group plc (NWG - Free Report) and Portigon Financial Services AG.

The regulator said that the traders of these seven banks used online chatrooms to regularly exchange commercially sensitive information, and coordinated trading and bidding strategies on the euro-denominated bonds ahead of auctions of the same. They were also proactive enough to update one another about trading parameters on the secondary markets for those bonds.

Swiss giant, UBS faces the largest penalty of €172.4 million, followed by Japan’s Nomura and Italy's UniCredit, which have to pay €129.6 million and €69.4 million, respectively.

Per a Bloomberg article, UBS has remarked that the fine could unfavorably impact its second-quarter results by as much as $100 million. Its contemplating an appeal and has said in a statement that it had “taken appropriate action years ago to mitigate and improve processes.”

Nomura has claimed that the fine “relates to historic behavior” by two former employees “for an approximate 10-month period in 2011.” The fine is unlikely to hurt the current financial year’s results and the bank has also created contingency for the fine. Per a Bloomberg article, UniCredit “vigorously contests” the fine and will also appeal to the EU courts. The bank “maintains that the findings do not demonstrate any wrongdoing.”

Bank of America and Natixis escaped the fines since they left the cartel more than five years before the European Commission resumed the investigation. However, the finding against them implies that they would be seen as repeat offenders and would face higher fines from any future breaches.

NatWest (at that time known as the Royal Bank of Scotland Group) would have been charged around €260 million for participating in the cartel but was fully exempted for being first at whistle blowing.

The German financial firm, Portigon (successor bank to bailed out and failed lender WestLB) dodged a €4.9 million levy since it did not muster any net turnover in the last business year and the European Commission’s antitrust fines are crowned at 10% of year’s turnover. Both NatWest and Portigon had received government bailouts during the financial crisis.

Nonetheless, these banks could be asked to pay for the damage inflicted upon people and companies by their anticompetitive deeds, as the European Commission’s decision against them now decrees a binding evidence of illegal activities. Institutional investors could also sue all members of the cartel for damages.

Banks worldwide continue to face probes and lawsuits for legacy business mishandling issues. These have an adverse impact on their financials as legal expenses and additional legal provisions hurt the bottom line to some extent.

While UBS currently carries a Zacks Rank #2 (Buy), Nomura has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Nomura have gained 10.6% over the past six months, outperforming UBS’ rally of 8.2%.

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