Competition Bureau investigating global banks

Canada's Competition Bureau is investigating allegations that certain global banks or financial brokerage firms conspired to manipulate interest rate derivatives for more than three years.

JPMorgan, Deutsche Bank, HSBC, Citigroup among reported targets

J.P. Morgan Chase is one of several global banks reported to be under investigation by the Canadian Competition Bureau. (Kathy Willens/Associated Press)

Canada’s Competition Bureau is investigating allegations that certain global banks or financial brokerage firms conspired to manipulate interest rate derivatives for more than three years.

Alexa Keating, a spokeswoman for the bureau, declined to identify the companies, but the Wall Street Journal said Tuesday the firms under investigation are the Canadian affiliates of JPMorgan Chase & Co., Deutsche Bank, HSBC, Citigroup, Royal Bank of Scotland and brokerage ICAP.

HSBC Bank Canada and Deutsche Bank had no comment when contacted by CBC News. JPMorgan Chase & Co. did not immediately return a call.

The allegations have been made by a Canadian bank, which the bureau has not named in documents it filed in May 2011 with the Ontario Superior Court.

The Canadian bank is seeking immunity from prosecution by the bureau and other financial markets regulators in the U.S., Europe and Asia.

On the basis of the documents, the bureau obtained a court order to have the firms turn over records of transactions relevant to its investigation.

Keating told CBC News the bureau is now at the stage of gathering evidence and that "appropriate action" would be taken if evidence of collusion were found.

Bureau's probe part of global investigation

Its affidavit outlines plans to investigate whether the firms conspired from 2007 to 2010 to profit by increasing "unreasonably the price of interest rate derivatives."

Derivatives are financial contracts that are based on an interest rate, currency or an asset and that are bought or sold in order to insure against, or speculate upon, the risks associated with changes in those rates, currencies or assets.

Specifically, the documents say employees of the companies communicated with each other in an attempt to artificially influence the yen London interbank offered rate, known as libor, and increase their profits on trades related to the rate.

Yen libor refers to the rates, obtained during a daily survey of its members by the British Bankers’ Association in London, that reflect the costs at which those members borrow from each other in yen-denominated loans for various terms, ranging from overnight to one year.

Keating said the anti-competitive behaviour, if it took place, had the potential to affect all Canadian banks, investment banks and other companies with investments based on yen libor.

The move by Canadian authorities is part of a wider, global investigation, and Keating said the bureau was "co-operating with our international partners."

Swiss regulator looking at a dozen banks

On Feb. 3, the Swiss Competition Commission said it had launched an investigation into possible cartel behaviour by a dozen banks including the country's two biggest institutions, UBS and Credit Suisse.

In a statement, the commission said it suspected the banks of colluding to influence key interest rates and the trading conditions for derivatives.

"Specifically, collusion between derivative traders might have influenced the reference rates libor and tibor," it said.

Tibor is the Tokyo Interbank Offered Rate, an average of the rates at which Japanese banks borrow from each other.

The foreign institutions named in the Swiss probe were Bank of Tokyo-Mitsubishi, Citigroup, Deutsche Bank, HSBC, JP Morgan Chase & Co., Mizuho Financial Group, Rabobank Groep, Royal Bank of Scotland, Société Générale SA, and Sumitomo Mitsui Banking Corporation.

The libor reference rate is the daily average of the libor rates for various currencies and terms, and is used by many banks, mortgage lenders and credit card companies around the world to set their own interest rates on an estimated $360 trillion US in financial products sold to individual and business customers.

Competition authorities in the United States and Britain have launched similar investigations.

With files from The Associated Press