Monthly Archives: April 2011

Markit Statement on European Commission CDS Inquiry

Never have so few words been written in such a long time…. Well, I’m not 100% sure about that, but the financial information provider Markit certainly took some time to up with the following 106-word-comment on today’s top story; the alleged exclusive information deal with the world’s largest banks.

“Markit does not believe it has engaged in any inappropriate conduct and looks forward to demonstrating that to the Commission.”

Michael Gormley

I guess it’s about eight hours since I asked Markit for a comment on EU’s CDS-investigation. That equals about 0,22 word per minute, or 13,25 word per hour. 

Anyway, Markit have carefully chosen the following 106 words:

“Markit is aware of the European Commission’s statement that it will open investigations relating to the Credit Default Swaps information and clearing markets.

Markit has no exclusive arrangements with any data provider and makes its data and related products widely available to global market participants.

Markit has created new and innovative products and services in a competitive marketplace since its inception, bringing greater transparency and information to the CDS market.

Markit is unaware of any collusion by other market participants as described by the Commission.

Markit does not believe it has engaged in any inappropriate conduct and looks forward to demonstrating that to the Commission.”

Michael Gormley


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Too Big To Jail

One might certainly wonder what the EU regulators want to achieve with their  probe into the big global bank’s shady CDS activity. They can’t launch a criminal investigation anyway. The banks in question – once “too big to fail” – are also “too big to jail”.

Credit rating agencies would weigh in with ponderous warnings, which would scare sources of capital from participating.”

As pointed out in my last post, I’m not sure what’s really going on with the European Commission and the launching of two separate probes into the shady CDS trading of 16 major global banks. Perhaps they’re trying to fill up the bailout-bin with some juicy cash settlements?

That is acctually all the EU Commission can hope for.
Whatever the findings of the CDS investigation might be, there will never be a criminal case against banks like Goldman Sachs, JP Morgan Chase or Bank of America.
It’s exactly one year since the US Security and Exchange Commission charged Goldman Sachs with fraud related to the subprime disaster.
Two months later, Goldman and the US authorities agreed on a cash settlement of USD 550 million, or – roughly – equal to 3,4% of the banks bonus pool…
And this was supposed to be the biggest crackdown on financial crime – ever!
All the major banks have been facing similar or other criminal charges, but none – I repeat; none – have so far been given more than a slap on the wrist and a cosy little fine.
Unfair? Absolutely. But the fact is, however, there’s nothing else to do.
As Robert Lenzner at points out; a criminal  case would threaten these banks status as an authorized dealers in government securities and would in effect put such a cloud over its role in  buying and selling US Treasury securities that it would damage that gigantic and  crucial marketplace.
Besides, a criminal case, before it was tried or settled, would severely hinder the banks’ ability to borrow money in global markets, as many financial institutions would place it on a restricted list.
“Credit rating agencies would weigh in with ponderous warnings, and most likely scare sources of capital from participating,” Lenzner writes in his comment on the latest Goldman-bashing by the US Senate.
And this, in turn, would drastically reduce these banks ability to trade corporate debt, common stocks, currencies or commodities.
This process would feed on itself even before any sense that the firm was criminal or not.
Additionally, the central bankswould become quite wary of having any of these firms as a counterparts on any transaction.
So would all other market participants.

About 90% of all the derivative transactions in the world are handled by these firms with each other as the counterparts.

And now we have a handful of US banks that are “too big to jail,” a bunch of European banks that are “too stressed to test” and those who once was classified as “too big to fail” are now labeled as “systemically important.”

Honestly? I’m deeply impressed!

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EU To Investigate CDS Manipulation by Major Banks

Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and 14 other investment banks face a European Union antitrust probe into credit-default swaps (CDS) for companies and sovereign debt, reports. Well, at the moment no one can say for sure who’s manipulating who.

“I hope our investigation will contribute to a better functioning of financial markets.”

 Joaquin Almunia

CEO Lloyd Blankfein of Goldman Sachs

It may just be my twisted, suspicious mind, but there’s some red lights flashing in the back of my head. Just a few week’s ago about 200 European economist’s and financial experts made a formal request to the EU parliament to conduct an investigation of the Greek national debt. This was followed by a suggestion by the Greek government to probe the financial markets instead.

“Blame the speculators,” have also become like a mantra to the EU leaders during the crisis that they have no idea on how to manage.

In that particular light, this new investigation comes as no surprise.

I have just asked Markit to comment on the allegations, and are still waiting for their reply.

In the meantime, this is what Bloomberg reports:

The European Commission said today it opened two antitrust probes. It will check whether 16 bank dealers colluded by giving market information to Markit, a financial information provider.

It will also examine whether nine of the firms struck deals with ICE Clear Europe, a clearinghouse for derivatives, that block other clearinghouses from entering the market and give rivals “no real choice where to clear their transactions.”

“Lack of transparency in markets can lead to abusive behavior and facilitate violations of competition rules,” said Joaquin Almunia, the EU’s antitrust chief, in an e-mailed statement. “I hope our investigation will contribute to a better functioning of financial markets.”

Global regulators have sought to toughen regulation of credit-default swaps saying the trades helped fuel the financial crisis.

Lawmakers in the EU plan to encourage the use of clearinghouses and transparent trading systems. CDS are derivatives that pay the buyer face value if a borrower defaults.

Possible Collusion

JPMorgan, Bank of America Corp. (BAC), Barclays Plc (BARC), BNP Paribas (BNP) SA, Citigroup Inc. (C), Commerzbank AG (CBK), Credit Suisse Group AG (CSGN), Deutsche Bank AG (DBK), Goldman Sachs, HSBC Holdings Plc (HSBA), Morgan Stanley, Royal Bank of Scotland Group Plc (RBS), UBS AG (UBSN), Wells Fargo & Co. (WFC), Credit Agricole SA (ACA) and Societe Generale (GLE) SA will be investigated for possible collusion in giving “most of the pricing, indices and other essential daily data only to Markit.”

The commission said this “may have the effect of foreclosing the access to the valuable raw data by other information service providers.” It said some of the clauses in Markit’s licence and distribution agreements “could be abusive and impede the development of competition in the market for the provision of CDS information.”

The EU will also separately investigate credit default swap clearing and deals struck by ICE Clear Europe with Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley (MS) and UBS.

These agreements have clauses on preferential fees and profit sharing arrangements “which might create an incentive for the banks to use only ICE as a clearinghouse,” the EU said. That may block other clearinghouses from starting up and limit choice for CDS dealers, it said.

Giles Croot, a spokesman for Barclays, wasn’t immediately available for comment when contacted by Bloomberg.

Deutsche Bank spokesman Ronald Weichert declined to comment as did Commerzbank spokesman Reiner Rossmann.

The probe will also cover fee structures used by ICE to check if they give “an unfair advantage to the nine banks by discriminating against other CDS dealers.”

Stay tuned for updates!

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