Citi (C) Settles Benchmark Manipulation Case For $425M

Adding to the woes of banking giant Citigroup Inc. (NYSE:C) , Commodity Futures Trading Commission (CFTC) recently leveled a $425 million charge against the bank for manipulating certain key currency-valuation benchmarks.

Out of the total settlement amount, $250 million is related to the manipulation of U.S. Dollar International Swaps and Derivatives Association Fix (ISDAFIX) between Jan 2007 and Jan 2012. Notably, ISDAfix rates are a benchmark used to appraise interest rate derivatives, commercial real estate mortgages and structured debt securities.

According to regulators, Citigroup was in the panel of banks for submitting a reasonable bid for interest rate derivatives and the average of those submissions used to fix the ISDAFIX benchmark rate for that day.

However, Citigroup “made false reports” distorting the average, the trading commission said. The bank’s motive, the agency stated, was to benefit its own trading positions at the expense of its trading partners’ and clients’.

Further, the remaining amount of $175 million includes settlement of manipulation charges related to yen LIBOR through Feb-Aug 2010 and euroyen TIBOR from Apr through Jun 2010. The regulators said that between the spring of 2008 through the summer of 2009, Citi made "U.S. Dollar submissions on a desire to avoid generating negative media attention and to protect Citi's reputation in the market."

The order requires Citibank to "immediately cease and desist from further violations of the Commodity Exchange Act." The CFTC demanded Citigroup to implement new internal procedures for ensuring the integrity of interest-rate swap benchmarks like the USD ISDAfix.

"The CFTC's order demonstrates that we will vigorously continue to investigate any efforts to manipulate financial benchmarks, and we will take action where possible to protect the integrity of these benchmarks," CFTC enforcement director Aitan Goelman said.

“These settlements represent a significant step for Citi in resolving its legacy benchmark rate investigations,” Danielle Romero-Apsilos, a Citigroup spokeswoman, wrote in an e-mailed statement. “We continue to fully cooperate with pending investigations conducted by other agencies related to benchmark rate submissions.”

However, Citigroup neither admitted nor denied the allegations. Moreover, the settlement would be covered by Citigroup from the existing legal reserves.

Legal tussles seem unending for big banks. Recently, seven major banks settled a private U.S. lawsuit in Manhattan federal court for a penalty amount of around $324 million. The banks in question were accused for manipulation of ISDAfix rates.

The banks – Bank of America (NYSE:BAC) Corporation (NYSE:C) , Barclays PLC (NYSE:C) , Citigroup, Credit Suisse (SIX:CSGN) Group AG (NYSE:C) , Deutsche Bank AG (NYSE:DB) , JPMorgan Chase & Co. (NYSE:JPM) and The Royal Bank of Scotland (LON:RBS) Group plc (TO:RBS) – are currently awaiting an approval from the court which will also settle the antitrust charges against the banks.

Last year, Barclays agreed to pay a penalty of £74.2 million ($115 million) to the U.S. Commodity Futures Trading Commission to settle ISDAfix manipulation charges.

Notably, several major banks have been charged for manipulating the London Interbank Offered Rate (LIBOR) – an important benchmark that financial institutions use to set interest rates in trillions of dollars worth of loans and investments.

Conclusion

Manipulation of benchmark interest rates by major financial institutions have triggered thorough investigations by regulatory bodies across Europe, Asia and America and claimed billions of dollars as settlements and fines. We look forward to the gradual resolution of such matters which will put long-drawn investigations to rest and bring reprieve to the banks. However, it is likely to deal a huge blow to their financials.

Meanwhile, regulatory authorities are thoroughly investigating issues related to the increasing occurrence of foreign exchange rate fixing and are determined to propose a landmark judgment to terminate such practices and bring justice to the wronged.

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