EXPLANATOR-How will the EU’s ban on 10 banks from selling bonds affect markets and banks?
Band Yoruk Bahceli
LONDON, June 17 (Reuters) – Ten banks have been excluded for past violations of the antitrust rules of European Union syndicated debt sales backing Brussels’ COVID-19 recovery fund to the tune of 800 billion euros ($ 969 billion).
Here’s what the move means for EU debt sales, bond markets and the banks involved:
WHICH BANKS ARE CONCERNED?
Banks all over the world are affected: US lenders JPMorgan Chase & Co. JPM.N, Citigroup Inc. CN and Bank of America Corp. BAC.N as well as its British peers Barclays Plc BARC.L and NatWest Group Plc NWG.L are on the list.
In continental Europe, Deutsche Bank AG DBKGn.DE, Natixis SA CNAT.PA and CrÃ©dit Agricole SA CAGR.PA and UniCredit SpA CRDI.MI are affected. Plus the Japanese company Nomura Holdings Inc. 8604.T. All the banks declined to comment.
All on the list of 39 primary dealers responsible for managing debt sales – syndicated and auctioned – for the block and managing its debt swaps on the secondary market.
There are many benchmark European banks in the public sector bond market; seven are among the top 10 earners of syndicated debt sales in this market since 2020, according to Dealogic.
WHAT DID THEY DO?
The ban concerns lenders found to be part of three cartels in the past three years. One saw a number of banks fined for tinkering with the spot foreign exchange markets between 2007 and 2013. Another revealed that a number of banks had agreed on the Trading strategies and pricing between 2010 and 2015 of public sector bonds – debts issued by institutions related to government. A third concerned a cartel of traders in various banks in the primary and secondary markets of European government bonds.
WHAT WILL BE THE LOSS OF FEES?
Refraining from syndications, where investment banks are hired by an issuer to sell debt directly to end investors, means losing lucrative fees. Banks received â¬ 20m – 0.1% of â¬ 20bn – in fees on Tuesday’s first bond, according to Reuters calculations.
The fees vary according to the maturity of the debt; the longer the deposit, the higher the fees.
An average of its fees across all maturities for the remaining 60 billion euros of this year’s long-term debt issuance would translate into a pool of an additional 66 million euros if all that debt were to be syndicated, they said. showed Reuters calculations. Considering that it will be split among all participating banks, this is a relatively small amount compared to the $ 224 million that JPMorgan has raised on its own through sales of European public sector syndicated debt since early 2020, according to Dealogic.
The EU also pays lower fees for its recovery fund debt than European sovereigns. However, it is currently issuing all of its debt through syndications and will rely on them much more than the Sovereigns even after the auction starts in September, which means that this is a source of fees that the Sovereigns. banks won’t want to run out.
The exclusion also means that smaller lenders could see their share of the costs increase.
HOW LONG WILL THE BAN LAST?
No timeline has been given. European Budget Commissioner Johannes Hahn said the committee would work on the basis of information provided by the banks on how they have dealt with the problems “as quickly as possible”.
Sources told Reuters that some banks have already submitted information, others are expected to follow soon. This could mean that some of the banned banks could get the green light to join bond sales, the sources said.
A senior banker from a non-banned prime broker has said he expects at least some of the banks to be readmitted by September, when European auctions begin.
WILL IT REACH LIQUIDITY?
The purchase of bonds by the ECB depleted some liquidity in the bloc’s bond markets. Liquidity is important for investors, which makes transactions easier and cheaper.
Syndication fees are a key factor motivating banks to participate in auctions that are much less lucrative but crucial to maintaining liquidity.
European governments have lost primary dealers in recent years, as banks have deemed the activity less profitable.
And leaving fewer big banks to underwrite its syndications could also pose risks for the EU.
EU syndication feeshttps://tmsnrt.rs/3vvxngQ
(Reporting by Yoruk Bahceli, Abhinav Ramnarayan, Dhara Ranasinghe and Iain Withers in London, John O’Donnell in Frankfurt and Foo Yun Chee in Brussels; written by Karin Strohecker; edited by Chizu Nomiyama)
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