US authorities have settled with Deutsche Bank AG (NYSE:DB) and Bank of America Corp (NYSE:BAC) on a preliminary basis, following allegations of the firms rigging the government agency bond market. Consequently, both banks agreed to a collective $65.5 million preliminary settlement with the US District Court in Manhattan.
Lost in the turmoil of LIBOR and forex exchange rigging scandals has been the $9 trillion agency bond market. The preliminary settlements constituted $48.5 million for Deutsche Bank and $17 million for Bank of America, according to a Bloomberg report. Despite the settlement, both banks denied any wrongdoing, despite allegations of rigging that span a decade.
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The preliminary settlement was of note given that it reflects the first in litigation that had accused upwards of ten banks of conspiring to rig the overall market – this included USD-denominated supranational, sub-sovereign, and agency (SSA) bonds. Together with Deutsche Bank and Bank of America, BNP Paribas, Citigroup, Credit Agricole, Credit Suisse Group, HSBC Holdings, Nomura Holdings, Royal Bank of Canada, and Toronto-Dominion Bank were also named in the suit and allegations.
Allegations of collusion
The case was brought to the US District Court following accusations of collusion and illegal communication between multiple parties. More specifically, this included the disclosure of sensitive information and pricing data via telephone, chatrooms, and instant messaging.
This ability of leading groups to pool information in this fashion allowed them to operate as an aggregated trading desk, subsequently facilitating the coordination of trading strategies for bigger profits. According to a court manifest, these allegations related to a period between 2005 and 2015. Unfair pricing on bonds for clients is also alleged.
A more expanded settlement is almost sure to take place for the other eight banks, with this week’s verdict heralding a larger sum. US authorities have taken more concerted steps to stamp out fraud, which could signal a greater focus on the bond space.