Finance

EU blocks US banks from working on major bond programme

The European Union excluded some of the world’s largest banks from working on a huge new debt-issuance programme, citing recent cases in which regulators punished them for forming cartels in the bond and currency markets.

The banks include Barclays, JPMorgan, Nomura, UniCredit, Bank of America, Citigroup and Credit Agricole, according to an EU official.

The European Commission is assessing whether “the primary dealers found guilty of breaching antitrust rules have taken necessary remedial measures to terminate these practices,” according to an emailed statement. Pending the assessment’s completion, these institutions “won’t be invited to tender for individual syndicated transactions,” it said.

Some of the banks couldn’t immediately be reached for comment. Nomura, JPMorgan, Citigroup, Barclays, Bank of America and Crédit Agricole declined to comment.

The EU was set on 15 June to begin issuing bonds to fund its fiscal spending plans to support member states’ recovery from the pandemic. The program, the first major pan-European debt program, will eventually raise around €800bn, equivalent to nearly $1trn, over five years. The first deal raised €20bn from the sale of 10-year bonds at a yield of 0.086%.

The move coincided with US President Joe Biden’s visit to Brussels, the headquarters of the EU, where he is meeting with NATO and European leaders. Points of contention remain between Washington and Brussels, such as tariffs on imported steel and aluminium that remain in place from the Trump era. A dispute over subsidies to aircraft makers Boeing and Airbus SE was resolved.

“This is a moment where the spotlight is on Europe. They took the opportunity to show their teeth,” said Carsten Brzeski, chief economist for the eurozone at Dutch bank ING.

The debt program is a landmark development in the bloc’s financial management. Known as common bonds, they will be issued on behalf of all member countries. As part of the region’s response to Covid-19, richer nations such as Germany and the Netherlands dropped previous resistance to backstopping debt that would fund spending in less well-off parts of the bloc.

Commercial banks help governments issue bonds, marketing the debt to investors and advising on pricing details such as the interest rate. The banks collect a fee as payment.

The EU ban references four cases of cartels that were penalised in 2019 and 2021. Nomura and UniCredit were fined nearly €130m and €69m, respectively, in May for illegally colluding on trades in European government bonds. In April, Bank of America received a penalty of €12.6m for coordinating prices for sovereign bonds denominated in dollars, while Crédit Agricole was fined nearly €4m.

In 2019, the EU fined a group of banks including Barclays, JPMorgan and Citigroup €1.07bn for manipulating the foreign-exchange market for 11 currencies including the euro, pound, yen, Swiss franc and US dollar. This was done by exchanging sensitive information and trading plans through online chat rooms.

Other banks were also involved in these cartels but haven’t sought to work on the EU’s bond deals.

The funds raised on 15 June will be used for grants and loans to EU member states to help their economies recover from the pandemic.

The funding program is seen to have reduced the risk of fragmentation in the eurozone, analysts said. “It’s much harder to make the case to be anti-European,” said Peter Schaffrik, a macro strategist at RBC Capital Markets. “That underlying political risk has been dialled down, and I think it can come down further.” That has helped narrow spreads between member states’ borrowing costs in recent months. The difference between Italy’s 10-year government bond yield and Germany’s has declined, for instance. It fell to 0.96 percentage point on 15 June, compared with 1.83 points a year ago.

Still, the EU has come under criticism for the size and timing of its major fiscal package. The €800bn that it plans to disburse is dwarfed by the trillions of dollars already spent by the US government during the pandemic. It also took about a year of negotiations for its 27 member states to agree on a spending plan and all to ratify it.

The EU said it would issue as much as €80bn of common bonds this year and several tens of billions of debt with shorter maturities through this program. Through 2026, it will tap the market for as much as €150bn a year. “If the European bond market has been missing something for the last 20 years, it’s a proper EU bond,” said Andrew Mulliner, a bonds portfolio manager at Janus Henderson. “People have made do using various government bonds as proxies.” He put in an order for the bonds sold on 15 June.

BNP Paribas, Intesa Sanpaolo, DZ Bank, HSBC Holdings and Morgan Stanley worked on the 15 June EU bond deal as joint lead managers. Danske Bank and Banco Santander SA acted as co-lead managers.

Write to Anna Hirtenstein at [email protected]

This article was published by Dow Jones Newswires

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