JPMorgan, Citigroup sued in Aussie rate-fix case

As many as 16 banks sued for allegedly manipulating key Australian interest rate

JPMorgan Chase & Co, Citigroup and Morgan Stanley are among 16 banks being sued by funds in the US for allegedly manipulating a key Australian interest rate benchmark to generate hundreds of millions of dollars in illicit profits.

The class action, filed in the US District Court for the southern district of New York, claims the banks sought to fix the bank bill swap rate, the local equivalent of Libor, which is used to price billions of dollars of floating-rate bonds and syndicated loans. It cites a civil action launched earlier this year by Australia's securities regulator against Australia & New Zealand Banking Group, National Australia Bank and Westpac Banking, which are also named in the US action.
 
"Defendants generated hundreds of millions of dollars in illicit profits by artificially fixing BBSW-based derivatives prices at levels that benefited their trading books," according to the complaint, which is seeking a court order to force the banks to "disgorge their ill-gotten gains."

The action is being brought by New York-based investment fund Sonterra Capital Master Fund, various FrontPoint Financial funds and Florida-based derivatives trader Richard Dennis, according to the filing. The document cites details from civil actions lodged by the Australian Securities & Investments Commission, including transcripts of electronic chats between traders allegedly showing collusion to fix the benchmark.

"ASIC's ongoing investigation has already uncovered communications in which defendants openly conspire to fix BBSW and the prices of BBSW-based derivatives," the document filed August 16 said. "Plaintiffs have good reason to believe and do allege that the limited, public materials available to date are only the tip of the iceberg."

Probes into the rigging of foreign-exchange markets and interest-rate benchmarks have led to lenders across the globe paying billions of dollars in fines and an overhaul of how such rates are set.

Australia's securities regulator has been investigating the setting of the swap rate since mid 2012 and has accepted voluntary contributions of a combined $3.6 million ($2.8 million) toward financial literacy projects from Royal Bank of Scotland, UBS Group AG and BNP Paribas SA.

Westpac and ANZ Bank said in separate statements Thursday that they will "vigorously" defend the US complaint, while National Australia reiterated that it didn't agree with claims made by ASIC. Another defendant, Lloyds Banking Group Plc, said the case was without merit and would be vigorously opposed.

The other banks named in the US action are: BNP Paribas, Royal Bank of Scotland, UBS, Commonwealth Bank of Australia, Deutsche Bank AG, HSBC Holdings, Macquarie Group, Royal Bank of Canada and Credit Suisse Group AG. Brokers ICAP Plc and Tullett Prebon Plc are also defendants.

Spokesmen for JPMorgan, Morgan Stanley, Macquarie, Commonwealth Bank, BNP, Deutsche Bank, RBS, HSBC, UBS and ICAP declined to comment, while Tullett Prebon didn't immediately respond to requests for comment. Citigroup, RBC and Credit Suisse said they couldn't immediately comment.

The US action asserts that trillions of dollars of BBSW-based derivatives traded over the counter and on public exchanges in the US during the "class period," which wasn't defined in the document.

According to the claim, Sonterra Capital engaged in dozens of Australian dollar foreign exchange swaps and forwards worth more than $490 million with Morgan Stanley at "artificial prices proximately caused by Defendants' manipulative conduct."

FrontPoint collectively traded more than $100 million in BBSW-based swaps with Macquarie, according to the claim. "Defendants' ultimate goal was to increase the profitability of their BBSW-based derivatives positions," according to the claim. "Given the bilateral, zero-sum nature of derivatives trades, every time BBSW moved in Defendants' favour it caused a corresponding loss to plaintiffs and the class."

The plaintiffs are seeking a jury trial.

TRILLION-DOLLAR RIGGING

• The suit claims the banks, including JPMorgan and Citigroup sought to fix the bank bill swap rate, which is used to price billions of dollars of floating-rate bonds and syndicated loans
  

 

The document cites details from civil actions lodged by the Australian Securities & Investments Commission (ASIC), including transcripts of electronic chats between traders allegedly showing collusion to fix the benchmark
 

The banks said they will "vigorously" defend the US complaint, while National Australia reiterated that it didn't agree with claims made by ASIC. Another defendant, Lloyds Banking Group, said the case was without merit and would be vigorously opposed
 

The US action asserts that trillions of dollars of bank bill swap interest rate-based derivatives traded over the counter and on public exchanges in the US during the "class period," which wasn't defined in the document