Citigroup fined in rate-rigging inquiry
Citigroup on Wednesday became the latest big bank accused of trying to manipulate global interest rates, a reminder of Wall Street’s wide-ranging abuse of power in these markets.
The Commodity Futures Trading Commission, a federal regulator that oversees Wall Street, announced $425 million in penalties against Citigroup, covering two overlapping cases.
Citigroup faces no criminal charges. In an unexpected move, the Justice Department confirmed Wednesday that it had closed its investigation into Citigroup and several other banks suspected of manipulating an interest rate benchmark commonly known as the Isdafix.
Still, the trading commission’s civil cases against Citigroup join a long list of actions against banks suspected of manipulating benchmark interest rates and currencies. Last year, the trading commission and the Justice Department announced civil and criminal charges against four of the world’s biggest banks, Citigroup included, for a scheme to manipulate the value of the world’s currencies.
“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,” Aitan Goelman, the trading commission’s enforcement director, said in a statement Wednesday.
All told, banks have paid more than $15 billion in penalties for the cases. Including those announced Wednesday, Citibank alone has agreed to pay $735 million.
“These settlements represent a significant step for Citi in resolving its legacy benchmark rate investigations,” the bank said in a statement. “In addition to adopting industrywide reforms related to participation in benchmark rates, Citi has made substantial investments in its systems, controls and monitoring processes to better guard against inappropriate behavior. Our greatest priority is to ensure that we conduct business in keeping with the highest ethical standards.”
The action against Citigroup centers on its attempts to manipulate a global benchmark rate that is a crucial tool for valuing a wide range of products across financial markets.
The benchmark is known as the International Swaps and Derivatives Association Fix, or, in Wall Street parlance, the Isdafix. Its rates are published daily for various interest rate derivatives contracts, which banks trade with other financial institutions and sell to clients looking to either hedge against a swing in interest rates or to speculate on the markets.
At the time of the misconduct, which ran from 2007 to 2012, Citigroup sat on a panel of banks that each submitted what was supposed to be a reasonable bid for interest rate derivatives. An average of those submissions formed the Isdafix benchmark rate for that day.
But rather than submit an honest bid, Citigroup “made false reports” that skewed its submissions, the trading commission said. The bank’s motive, the agency said, was to benefit its own trading positions at the expense of its trading partners’ and clients’.
As with earlier manipulation cases, regulators plowed through emails and instant messages between traders at Citigroup in which they discussed trying to “push” the prices on interest rate swaps to get better deals on derivative transactions the banks was handling. In one 2008 instant message, a Citigroup trader boasted, “I am very proud of myself,” after telling colleagues he had pushed the prices of a “swap on the screen.”