JPMorgan to HSBC Face Fines in S. African Rand-Rigging Probe

  • Lenders should pay penalty equal to 10% of sales: regulator
  • Case referred to Competition Tribunal for prosecution

South Africa’s antitrust investigators urged that a dozen banks be fined for colluding and manipulating trades in the rand, potentially becoming the latest in a string of penalties handed to lenders around the world for rigging currencies.

The Competition Commission identified lenders including Bank of America Merrill Lynch, HSBC Holdings Plc, BNP Paribas SA, Credit Suisse Group AG, HSBC Holdings Plc, JPMorgan Chase & Co. and Nomura Holdings Inc. as among those that participated in price fixing and market allocation in the trading of foreign currency pairs involving the rand since at least 2007. It referred the case to an antitrust tribunal, concluding an investigation that began in 2015.

The outcome of the probe comes as President Jacob Zuma and his governing African National Congress step up pressure to break the dominance of the country’s four largest lenders and force them to lend more to black clients. Zuma and the banks are also locked in a stand-off after the lenders closed the accounts of companies tied to his friends, the Gupta family, who are accused of using their relationship with him to influence government appointments and contracts.

“The timing for banks couldn’t be worse,” said Adrian Saville, the chief strategist at Citadel Investment Services & Cannon Asset Managers. “It comes at a time when they’re trying to demonstrate impeccable behavior. It makes a case for intervention.”

Banking stocks traded in Johannesburg fell for the first time in six days to head for their biggest decline in a week.

Fictitious Bids

The action by South African authorities also follows the sentencing by a U.S. federal judge in January of Citigroup Inc., Barclays Plc, JPMorgan and Royal Bank of Scotland Group Plc, which all pleaded guilty in May 2015 to rigging currency rates. As part of an overall $5.8 billion settlement with multiple regulators, they agreed to pay about $2.5 billion to the Justice Department. South Africa’s central bank said the Competition Commission’s investigation related mainly to rand-dollar trade in offshore markets.

“The respondents manipulated the price of bids and offers through agreements to refrain from trading and creating fictitious bids and offers at particular times,” the Pretoria, South Africa-based commission said in an e-mailed statement Wednesday. “They assisted each other to reach the desired prices by coordinating trading times. They also created fictitious bids and offers, distorting demand and supply in order to achieve their profit motives.”

While the commission recommended the banks be fined 10 percent of their turnover, the maximum allowed, the tribunal will determine a penalty based on “affected revenue” from their foreign exchange units and the period over which the transgressions took place, said Simon Roberts, a director of the University of Johannesburg’s Centre for Competition, Regulation and Economic Development.

‘Settlement Likely’

“It’s probably unlikely they will pay 10 percent,” he said. “I expect a settlement with at least some of the banks.”

Most banks don’t disclose or split out their foreign-exchange trading revenue, making it difficult to calculate the likely fine, according to Harry Botha, a banks analyst at Avior Capital Markets in Cape Town.

South Africa’s central bank said in a statement it viewed the allegations as a serious matter and would allow proceedings to run their course. Some 30 percent of daily turnover in the rand takes place in South Africa, of which foreigners account for 58 percent. In April 2016, the daily average worldwide foreign-exchange trading involving the rand was about $49 billion, it said, citing Bank for International Settlements data, representing 1 percent of total turnover.

Bad Reputation

“Collusive practices must lead to consequences such as termination of the services of key management, executive and non-executive directors,” said Asief Mohamed, chief investment officer at Cape Town-based Aeon Investment Management. “The banks, if guilty, will most likely be fined and this will have a negative impact on earnings and reputation. ”

Bank of America, JPMorgan, Standard Chartered Plc, Commerzbank AG, Macquarie Group Ltd., Australia & New Zealand Banking Corp., HSBC and BNP declined to comment when contacted by Bloomberg.

Investec Plc said it would cooperate with authorities, but was unable to comment further because it didn’t have details of their investigations. Barclays Africa Group Ltd. also said it would cooperate with the authorities, while noting that the regulator had not sought penalties against it. Credit Suisse said it is looking into the matter. Standard Bank Group Ltd. said it’s engaging with authorities on ‘this serious matter” and can’t comment further while the tribunal’s process continues.

Stocks Fall

Standard Bank, Barclays Africa and Nedbank Group Ltd. all fell 0.7 percent by 12:37 p.m. in Johannesburg, while FirstRand Ltd. declined 0.4 percent. The latter two lenders weren’t named in the probe.

The tribunal will now notify interested parties, such as government ministers, labor unions and small businesses, about the complaint and ask them if they want to participate, Chantelle Benjamin, a spokesman for the body, said by phone. The banks will have 20 working days to reply to the commission, or ask for extensions, before filing submissions and attending preliminary meetings to set a date for a full hearing, she said.The tribunal’s decisions can be appealed in the Competition Appeal Court.

The commission has previously uncovered collusion in the country’s bread and flour industry, among cement producers and by construction companies that bid to build stadiums for the 2010 soccer World Cup. Those involved were forced to pay hefty fines.

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