How embarrassing it must be for Jerome Powell, Chairman of the Federal Reserve, that three of the largest banks in the U.S. that are supervised by the Fed, have been deemed not trustworthy enough by the European Commission that they were banned from participating in this week’s historic European Union bond offering.
It is also egg on the face of the U.S. Department of Justice, which has been handing out deferred prosecution agreements to these same banks for felony counts like it’s a meter maid doling out parking tickets.
JPMorgan Chase, Citigroup and Bank of America were banned along with seven non-U.S. banks from participating in this week’s European Union bond offering. The syndicated offering is part of what will grow over the next five years to be a $969 billion COVID-19 recovery fund for the European Union, part of the plan it’s calling NextGenerationEU.
The seven non-U.S. banks that were barred are: Barclays, Crédit Agricole, Deutsche Bank, Natixis, NatWest, Nomura and UniCredit.
Adding to the embarrassment of the three U.S. banks that have been banned is the fact that a much smaller U.S. bank in terms of assets, Morgan Stanley, snagged the position as one of the joint lead managers on the deal.
According to reporting in the Financial Times, the European Commission explained the ban this way: “The Commission implements a strict approach to ensuring that the entities with whom it works are fit to be a counterparty of the EU.”
The banned banks are deemed unfit because they have been charged by the European Commission with engaging in cartel activity within the European Union. In the case of JPMorgan Chase and Citigroup, they settled with the European Commission in 2019 over charges of being part of a larger bank cartel rigging foreign currency markets. JPMorgan Chase and Citigroup were also charged and settled with the European Commission in 2013 for being part of a larger bank cartel rigging Yen interest rate derivatives.
Bank of America Merrill Lynch settled in April with the European Commission for its role in a bank cartel that rigged trading in the secondary market for sovereign debt. It paid a fine of 12.6 million euros.
For those with longer memories, Citigroup might also be tainted in Europe for its infamous “Dr. Evil” trades. That was the code name that Citigroup’s traders actually had the audacity to assign to an attempt to exploit a weakness in a European bond trading system. Citigroup settled with Europe’s Financial Services Authority for $26 million in 2005 over that conduct.
