Big Banks to Pay $46 Million to Settle Swaps Collusion Case

Ten major US and European banks, including Goldman Sachs Group Inc., JPMorgan Chase & Co. and BNP Paribas SA, plan to pay a combined $46 million to end a lengthy legal battle with pension plans that accused them of conspiring to block competitors in interest-rate swaps trading.

The payments are part of a deal to settle an antitrust lawsuit brought by investors more than eight years ago. The settlement was filed Thursday in New York federal court, and plaintiffs have asked US District Judge Paul Oetken to preliminarily approve it.

The banks have denied violating any laws and said they sought to avoid the cost of ongoing litigation. Bank of America Corp. declined to comment, and the others didn’t immediately return requests for comment. Another bank, Credit Suisse Group AG, settled claims in the case two years ago by agreeing to pay $25 million. Credit Suisse is now owned by UBS Group AG, which was among the 10 involved in the latest settlement.

The case is part of a wave of litigation brought by public pension plans against big banks accused of colluding across various markets, including interbank rates, currencies and credit default swaps. The financial institutions have faced claims that they kept electronic trading platforms from entering those markets so they could control prices and boost profits.

Some of the cases have led to substantial settlements and reforms. Last year, a platform used by banks in the market for stock lending agreed to make changes to “materially decrease the likelihood of future collusion.” Four banks paid almost $500 million to settle that case, but denied wrongdoing.

The swaps settlement comes after the judge in December denied class-action status to the claims. That essentially gutted the case because investors typically can’t afford bringing lawsuits on their own, according to Bloomberg Intelligence analysts. Before that ruling, BI had predicted the 10 remaining banks would settle for a combined $170 million to $850 million, based on what Credit Suisse had paid.

“The settlement represents an excellent recovery for the class given the challenges and uncertainties of further litigation,” attorneys for the plaintiffs wrote in Thursday’s filing.

The other defendants in the case are Barclays Plc, Citigroup Inc., Deutsche Bank AG, Morgan Stanley and NatWest Group.

Pension plans and other investors claimed the banks overcharged for interest-rate swaps because of their tight control over an antiquated over-the-counter market, where dealers priced and traded swaps directly with investors outside of centralized exchanges. According to the suit, Wall Street firms prevented the investors from using electronic platforms, which are more transparent, faster and offer better prices.

Investors, including pension plans, university endowments and hedge funds, typically use the swaps to hedge against changes to monetary policy when central banks raise or lower interest rates.

The banks argued that investors weren’t harmed because data shows that a large number of relevant trades didn’t make any money or resulted in a loss. The plaintiffs disputed that any below-zero trades occurred. But the judge, in refusing to grant class-action status, said the “plaintiffs failed to persuasively rebut defendants’ strong showing that there were numerous at-or-below-zero trades during the class period.”

The lawsuit alleged that the banks prevented the trading of interest rate swaps on services provided by Bloomberg.

The case is In re: Interest Rate Swaps Antitrust Litigation, 1:16-md-02704, U.S. District Court, Southern District of New York (Foley Square).

Top photo: The Manhattan skyline is seen from the roof terrace at the new Citigroup Inc. headquarters in New York, U.S., on Tuesday, Dec. 3, 2019. Citigroup’s trading floors – long known for being festooned with flags marking the home countries of its hundreds of traders, and banners touting years of good performance – have gotten swankier, with floor-to-ceiling windows, desks outfitted with 43-inch computer monitors and small cafeterias on every floor. Photographer: Marc McAndrews/Bloomberg.