EU opens antitrust probes into JP Morgan, 15 other investment banks

Apr 29, 2011, 11:21 GMT

Brussels - The European Union on Friday opened antitrust investigations into JP Morgan, Goldman Sachs and 14 other investment banks over a type of financial insurance that some believe to have exacerbated the eurozone's sovereign debt crisis.

The move, announced by EU competition commissioner Joaquin Almunia, targets: JP Morgan, Goldman Sachs, Bank of America, Merrill Lynch, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse First Boston, Deutsche Bank, HSBC, Morgan Stanley, Royal Bank of Scotland, UBS, Wells Fargo Bank/Wachovia, Credit Agricole and Societe Generale.

Almunia said the 16 investment banks may have colluded with Markit, the leading provider of financial information on Credit Default Swaps (CDS) trading, to shut out other competitors from the market.

CDS are a form of insurance against a specific economic event, such as a government defaulting.

'If proven such behaviour would be a violation of EU antitrust rules,' the European Commission said in a statement.

A second investigation concerns suspected preferential treatment accorded by ICE Clear, a CDS clearing house, to nine of the investment banks - Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS.

The actions announced by Almunia add to separate moves by the commission to regulate the CDS market and other types of financial instruments. EU finance ministers are currently discussing those reforms.

Public controversy has focused on 'naked' CDS trading, which occurs when an investor buys such a policy without holding a stake, such as a government bond, in the country in question - therefore providing him with an incentive to speculate against the country's finances to force it to default.

Greek Prime Minister George Papandreou said such practices pushed his country towards an EU-led bailout, providing the catalyst for the ongoing eurozone sovereign debt crisis.

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