Pension Sues Canadian Banks Over Key Rate -- WSJ
January 16 2018 - 3:02AM
Dow Jones News
By Vipal Monga
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 16, 2018).
TORONTO -- A Colorado pension fund is suing Canada's top six
banks and three other lenders for allegedly manipulating a key
Canadian lending rate.
The Fire & Pension Association of Colorado filed the lawsuit
in U.S. District Court in Manhattan Friday and alleged the banks
engaged in an "unlawful conspiracy" to boost their derivatives
trading businesses by manipulating the Canadian dealer offered rate
between 2007 and 2014.
The lawsuit names Canada's largest banks, Bank of Montreal, the
Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National
Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank,
along with Bank of America Merrill Lynch, Deutsche Bank AG and HSBC
Holdings PLC.
Bank of America Corp., National Bank, RBC, CIBC, HSBC and Bank
of Montreal declined to comment. The other banks didn't immediately
respond to requests for comment on the lawsuit.
The CDOR is a benchmark rate that aims to reflect the cost of
borrowing funds in Canada and is used to calculate interest on
several financial instruments, including interest-rate swaps,
forward contracts and other derivatives. It is calculated each
business day by Thomson Reuters based on submissions from banks of
rates at which they would be willing to lend.
The accusations in the lawsuit are similar to those associated
with the London interbank offered rate, the scandal-plagued
benchmark that is used to set the price of trillions of dollars of
loans and derivatives across the world.
The integrity of Libor was called into question following a
rate-rigging scandal where traders at numerous banks were able to
nudge it up or down by submitting false data. Banks including
Barclays PLC, J.P. Morgan Chase & Co. and Royal Bank of
Scotland Group PLC were fined billions of dollars and several
traders were sent to prison.
The U.K.'s Financial Conduct Authority, which regulates Libor,
said in July that the benchmark would be phased out and that work
would begin to plan for a transition to alternate benchmarks.
In the lawsuit related to CDOR, the Colorado pension fund noted
that BofA, Deutsche Bank and HSBC "have collectively paid
approximately $4.4 billion in fines to multiple government
regulators for manipulating at least 11 benchmarks..." The suit
alleges that their attempts to suppress CDOR are "part of a broader
pattern of price fixing and collusion intended to benefit
defendants' trading businesses at the expense of investors."
The suit claims that the banks conspired to keep CDOR rates low
by intentionally quoting lower rates because they were emphasizing
derivatives businesses that required them to pay rates based on
CDOR. The lower rate saved the banks money and boosted profits on
interest- rate swaps and other CDOR-based obligations. The Fire
& Police Pension fund said it had conducted more than $1.2
billion in CDOR-based business. It alleges that, it "paid more or
received less than it should have in those CDOR-based derivatives
transactions."
Canada's Office of the Superintendent of Financial Institutions
in 2014 said it would more closely monitor banks' submission
process to Thomson Reuters after noting there had "not been reports
that CDOR, or other Canadian financial benchmarks had been
manipulated." The agency published guidelines for banks to ensure
their internal controls over the submission process were
adequate.
The Colorado pension fund said it would continue to look for
evidence of collusion and price fixing as the lawsuit progresses.
"Plaintiff believes it will unearth additional evidence in support
of its claims after a reasonable opportunity for discovery."
(END) Dow Jones Newswires
January 16, 2018 02:47 ET (07:47 GMT)
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