Chatroom Secrets

Banking Scandal Spreads to Bonds

Canary Wharf-Bloomberg
London's Canary Wharf is at the center of the latest banking scandal, this time involving government bonds.
  • Why it matters

    Why it matters

    The scandal once again puts banks’ practices in an unfavorable light, although the focus this time is on a few individual traders rather than the banks as a whole.

  • Facts


    • The alleged price rigging related to government bonds and securities issued by development banks such as German bank KfW and the European Investment Bank.
    • Several employees have been suspended from their posts while investigations are carried out.
    • In 2014, the British financial regulator FCA imposed a fine of about £660,000, or $964,000 on a former trader of Credit Suisse who had attempted to sell bonds at an exorbitant price.
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It was a secret daily meeting in the virtual world.

Day after day, traders at four different banks are reported to have met in a private online chat-room to discuss one thing in particular: the prices of certain government bonds and of securities issued by development banks like KfW, which is owned by the German government, and the European Investment Bank.

Among other things, the traders allegedly exchanged plans to buy and sell bonds and passed on other internal information. The U.S. Justice Department, with the aid of the British Financial Conduct Authority, the FCA, is now investigating whether these chats led to the manipulation of government-bond prices, according to financial sources. The investigation was originally reported in the specialist journal International Financing Review.

According to sources, the investigation is focused on activities before 2014 and on traders who worked in London at banks including Japan’s Nomura, Bank of America and Swiss bank Credit Suisse.

Germany’s largest bank is also potentially implicated: One of the employees suspected of being involved is reported to have worked at Deutsche Bank during the period that interests the investigators the most.

The traders involved are said to have been temporarily suspended from their posts while the investigation takes place. Neither the authorities nor financial institutions would comment on the proceedings.

The latest investigation follows a familiar storyline. It marks a new front in a long-running series of investigations into the questionable practices of global investment banks in the run-up to – and in this case also following – the 2008 financial crisis.

Unlike in previous scandals, which led to fines totaling around $20 billion for major international banks, the authorities are now focusing on individual traders.

Global banks, including Deutsche Bank, have been implicated in a series of price-fixing scandals over the last few years, costing them billions in legal fees and settlements with regulators. The most prominent involved the manipulation of the Libor reference interest rate, for which Deutsche Bank was handed a record $2.5 billion fine last year – and the rigging of exchange rates.

The legal headaches for banks are showing little sign of letting up. For Deutsche Bank, traders and employees will appear in a Frankfurt court in February to answer charges that they helped companies evade taxes in the European C02 emissions trading market. The bank also faces an ongoing and potentially expensive probe into possible money laundering by traders in Russia and London.

The U.S. Justice Department has been looking into the dubious proceedings on the market for government bonds since last year. Some observers expect investigators are preparing to open up a new legal front in the coming weeks or months.

Unlike in previous scandals, however, which led to fines totaling around $20 billion for major international banks, the authorities are now focusing on individual traders rather than launching a large-scale investigation into the entire sector.

This is thought to be in response to criticism from governments and the public, who have complained that many bank managers got away with a series of previous transgressions.

The U.S. Justice Department has thus made a very clear pledge to take more targeted action against individuals. But some financial observers said the authority’s approach could be a sign that it may only have been individual traders who were involved in shady activities and that manipulation did not take place on a large scale.

The market for securities from issuers close to the government, such as Germany’s KfW development bank, is enormous. Experts at data provider Dealogic estimate that the annual issuing volume is almost $1.5 trillion.

However, the sums that banks can earn from this business are thought to be comparatively meager, and the number of major investors in this area is low.

“If a bank trader can agree with another trader on the selling price, that actually makes a big difference,” one market expert has been quoted by the International Financing Review as saying.

Chat forums like those allegedly used for price fixing in this case also proved useful to traders in the Libor scandal for contacting colleagues at other banks and agreeing on joint strategies. Banks have since significantly restricted access to such communication channels.

The current investigations by the authorities are not the first of their kind on the bond market. In 2014, the British FCA imposed a fine of about £660,000 on a former trader of Credit Suisse who had unsuccessfully attempted to sell bonds worth £1.2 billion to the Bank of England at an exorbitant price. Manipulation also occurred on the market for U.S. government bonds in the 1990s.

Sources in the financial sector also say that the FCA is investigating whether traders at British bank Lloyds Banking Group illegally influenced the prices of British government bonds and thus drove up the bank’s profit.


Frank Wiebe is a New York correspondent for Handelsblatt, covering finance policy. Katharina Slodczyk is Handelsblatt’s London correspondent. To contact the authors: and

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