In a lawsuit brought on by investors in the United States District Court for the Southern District of New York, a settlement has been reached in which JPMorgan Chase & Co, Morgan Stanley and Barclays Plc have agreed to pay over 50% of the $1.86 billion settlement amount. The settlement agreement resolves investor claims that the financial institutions conspired to fix prices and unlawfully limit competition in the market for credit default swaps.
The plaintiff investors include the Los Angeles County Employees Retirement Association and Salix Capital US Inc.and the case was brought against several defendants, including JPMorgan Chase & Co, Morgan Stanley, Bank of America Corp , BNP Paribas SA, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG.
Details regarding the settlement and the payment percentages were revealed in papers filed on Friday in federal court in Manhattan, just about one month after the proposed deal was announced.
According to the documents filed with the court, JPMorgan will pay $595 million in damages, while Morgan Stanley and Barclays will pay $230 million and $178 million, respectively.
Goldman Sachs, Bank of America and Credit Suisse will pay about $164 million, $90 million and $159 million, and Deutsche, Citi and BNP Paribas will pay about $120 million, $60 million and $89 million, respectively.
Moreover, British banks HSBC and Royal Bank of Scotland will pay $25 million and $33 million.
Lastly, the International Swaps and Derivatives Association (ISDA) have agreed to pay $750,000, while Markit Ltd will pay $45 million.
The lawsuit was based on the banks’ practices regarding credit default swaps. These swaps essentially are contracts that allow investors to buy protection to hedge against the risk that sovereign or corporate debtors will not meet the terms of their payment obligations.
According to the Bank for International Settlements, the credit default swap market reached its peak in 2007 at $58 trillion, but dropped to $16 trillion just seven years later as investors more fully understood the risks.
In the lawsuit, the plaintiffs claimed that the actions of the defendants caused the investors to pay unfair prices on credit default swap trades from late 2008 through the end of 2013. These actions continued even though increased values should have lowered costs.
The plaintiff investors also claimed that the banks tried to illegally stifle market competition by not using new credit default swap platforms and urging (i.e., pushing) companies to not provide licenses to the exchange.
United States and European regulators are also examining potential illegal anti-competitive practices in the credit default swap market.