Unsettling experience

Settling is hard to refuse in EU rates probes

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Brussels has handed banks a tactical quandary. The European Commission's antitrust arm is preparing to hand some euro 5 billion of fines to the industry for its now-infamous attempts to manipulate interbank lending rates like Euribor and yen Libor. But some banks aren't willing to settle. They face a tricky choice: buy peace now, or risk the ire of a powerful regulator - and a possibly larger fine later.

The standard protocol for dealing with the Commission is ready compliance. A quick settlement gives visibility to investors on the size of the penalty, and helps smooth future dealings with EU authorities. Royal Bank of Scotland, Deutsche Bank and Societe Generale are taking this traditional route, according to some reports.

Yet at least three banks -reportedly HSBC, Credit Agricole and JPMorgan - are dragging their feet. They may have good reasons to do so. Their lawyers may feel they can argue that their bank's involvement in fiddling benchmark rates was either non-existent or restricted in number or scope. Banks may also dislike the rough and ready way in which fines are determined: in some antitrust cases, penalties reflect market shares on the relevant market, which hits larger firms harder.

Still, making an enemy of Brussels is perilous. Banks that don't settle will face formal antitrust charges at the end of the process. The maximum fine then is 10 per cent of the bank's global revenue - naturally subject to appeal. Even without that nuclear option, there's the risk that interfering with Brussels' plan to create one cross-industry settlement could lead to rougher treatment in future. And the reputational hit stemming from the inclusion on a list of Libor fiddlers has to be balanced against the risk of greater ignominy and greater potential financial pain later on.

According to a senior banker the overall sector-wide settlement from the different antitrust probes could be in the ballpark of euro 5 billion. That's only a little more than the theoretical maximum fine for HSBC based on 10 per cent of its global revenue. Either the refuseniks are engaging in some last-minute haggling -they can always settle later on - or they think they have a watertight case.