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HSBC, Citi, 3 Others Likely to be Fined for UK Bond Collusion

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The Competition and Markets Authority (“CMA”) said that following the 2008 financial crisis, traders at Citigroup (C - Free Report) , Deutsche Bank AG (DB - Free Report) , HSBC Holdings plc (HSBC - Free Report) , Morgan Stanley (MS - Free Report) and Royal Bank of Canada (RY - Free Report) conspired in chat rooms to swap sensitive information on UK bonds.

The antitrust agency said in its provisional findings that between 2009 and 2013, each of these five banks unlawfully shared details on pricing and trading strategies in chat rooms.

The CMA claimed that by sharing sensitive information with competitors, these banks could have prevented the full competition benefits of anyone they traded with, including pension funds and, ultimately, UK taxpayers.

Per the CMA’s findings, the case relates to a small number of traders who worked at the banks and were connected to the buying and selling of UK government bonds — gilt and gilt asset swaps.

Notably, in response to the financial crisis, Bank of England held buyback auctions in 2009 as part of its quantitative easing policy. Some of the alleged collusions are expected to have occurred because of this.

Since Deutsche Bank was the first to self-report its involvement, it will not have to pay any fine. Moreover, Citigroup’s penalty, if any, will be discounted after the two banks admitted to the collusion.

However, HSBC, Morgan Stanley and RY have not yet admitted any wrongdoing.

The CMA said that penalties might be issued only after a final conclusion is made, and, at this point, no assumption should be made that any of the banks have broken the law.


Of late, European antitrust agencies have been carrying out a series of investigations to target some of the biggest banks in the region in an effort to take a closer look at bond market collusion. The European Commission has spent more than a decade investigating how bank traders swapped information in chat rooms.

Last year, the European Commission issued a formal complaint to Deutsche Bank for its alleged role in a cartel linked to euro-denominated bonds.

Legal hassles do not seem to end for some of the banks. Due to the nature of its business, Deutsche Bank remains involved in litigation, arbitration and regulatory proceedings in Germany, and in a number of jurisdictions outside Germany.

DB shouldered significant legal settlement costs in the past, which adversely impacted its financials. Though the company has resolved several legal matters and made progress on several others, a number of cases are yet to be resolved. Hence, higher legal expenses are expected to affect Deutsche Bank's financials in the near term.

Similarly, Citigroup continues to encounter many investigations and lawsuits from investors and regulators. Though the company resolved certain litigations related to the sale of risky mortgage-backed securities and other issues, many of the cases are yet to be resolved. In third-quarter 2021, the company submitted its remedial plans, comprising six major programs over a multi-year period, to regulators.

As Citigroup continues to work through its legacy legal issues, we believe that the company might witness elevated regulatory expenses and litigation provisions, hurting its financials in the near term.

Currently, MS carries a Zacks Rank #4 (Sell). HSBC, RY and C carry a Zacks Rank #3 (Hold), whereas DB carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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