News Analysis: Italy's largest bank facing scrutiny for allegations of bond market collusion  

Source: Xinhua| 2019-04-19 18:55:48|Editor: Xiaoxia
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by Eric J. Lyman

ROME, April 19 (Xinhua) -- Italy's largest bank could face massive fines for its role as part of an eight-bank scheme the European Commission says was "aimed at distorting competition when acquiring and trading European government bonds."

UniCredit is one of eight banks accused of collaborating with each other to set prices and limit competition on the sale of bonds for a six-year period ending in 2012. Because it independently confirmed the charges, the Milan-based banker is the only one of the eight banks whose identity is confirmed.

The competition-related accusations are serious: statutes allow for UniCredit to be fined as much as "10 percent of the company's annual worldwide turnover." That could mean fines of nearly 2 billion euros (2.25 billion U.S. dollars) based on the company's own projection of 19.8 billion euros (22.3 billion U.S. dollars) in revenue this year.

In its statement on the matter, UniCredit confirmed the possibility that fines could total as much as 10 percent of its turnover, but it considered the prospect of paying any fines "unlikely." The company has until April 29 to either appeal the ruling or to seek an extension.

According to Marina Brogi, a professor of banking and capital markets at Rome's La Sapienza University, UniCredit and the other banks were apparently "acting as a kind of cartel" based on communications between traders and other officials at the eight banks.

"The allegations are that the traders exchanged information and agreed to take steps that would distort competition," Brogi said in an interview.

In its published statement on the matter, the European Commission declared that "traders employed by the banks exchanged commercially sensitive information and coordinated on trading strategies." The actions had the aim of "distorting competition" for European government bonds.

Bonds are investment vehicles sold by European governments in order to help finance day-to-day operations.

The commission's statement said it does not believe "the alleged anti-competitive conduct was a general practice" in European bond trading markets.

According to Rocco Panetta, managing partner at the law firm Panetta & Associati, which specializes in part on competition issues, it is too early to interpret all the details about the investigation.

"Everything is not yet clear," Panetta told Xinhua. "It looks like a case of insider trading where the traders and officials were communicating via some kind of online chat system. Because these chat programs are a kind of social media, the information communicated is outside the reach of magistrates."

Panetta said it was unclear how investigations found out about the conversations.

"Perhaps there was a whistleblower," he said, referring to the term for an informed party inside a relevant organization who alerted authorities. "Or maybe it was just the case that the way markets were behaving made it apparent there was something suspicious going on. It could have been a case that they saw the smoke and so they could infer there was a fire."

UniCredit took the step of confirming the investigation under the guidance of CONSOB, Italy's security regulator.

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