Also: Julius Baer hit with $150m Cold War-era claim, Barclays pays $87m for bond rigging. Data by ORX News
In December’s largest loss, the Zurich Court of Appeal ordered Swiss private bank Julius Baer to pay Sfr153 million ($154.6 million) to the German government over alleged unauthorised withdrawals made from an account at its subsidiary, Cantrade Bank, dating back to the fall of the Berlin Wall.
In 2014, Bundesanstalt für vereinigungsbedingte Sonderaufgaben – a government body that seeks to track down assets previously held by the former East German state – filed a claim alleging that, between 1990 and 1992, withdrawals totalling Sfr97 million were made from an account owned by a foreign trade company established in what was then the German Democratic Republic. The funds were moved into Swiss banks after the fall of the Berlin Wall and were never recovered.
BvS alleges the transfers were unauthorised, and that Cantrade – which Julius Baer subsequently acquired from UBS in 2005 – was negligent in its duty of care to the account holders, and for failing to flag suspicious transactions and payments. It is now seeking to reclaim the amount plus interest.
Julius Baer said that it would appeal the decision to the Swiss Federal Supreme Court but would preventatively provision for the amount. The bank said it would seek to claim any final amount it would have to pay from UBS under the terms of a related transaction agreement of 2005, which, if it is successful, may result in a lower net loss to the private bank.
In second place, the French Competition Authority fined Natixis Intertitres – a unit of French banking group BPCE, which issues meal vouchers to employers in France, a common employee benefit – €83.3 million ($92.9 million) for conspiring with other providers of restaurant vouchers to prevent rivals from entering the market for almost two decades.
According to the Authority, between 2002 and 2018, Natixis Intertitres and three other providers collectively agreed not to issue restaurant vouchers in the form of a card or mobile app, something it argues damaged competition and restricted the development of technological innovation in the sector. Between 2010 and 2015, the issuers exchanged confidential information concerning their respective market shares each month through the lunch vouchers payment department. Natixis refuted all claims against it and said it would appeal the fine.
The third loss saw Barclays preliminarily agree to pay $87 million to settle claims it conspired to rig the prices of bonds issued by mortgage companies Fannie Mae and Freddie Mac. Investors, including pension funds, alleged that Barclays and 15 others had used their unique position as bond sellers for the government-sponsored entities (GSEs) to conspire to increase the prices of bonds, which consequently harmed investors. The 16 firms underwrote $3.97 trillion of Fannie Mae and Freddie Mac bonds between 2009 and 2016. Barclays underwrote more of these bonds than other firms.
In a separate settlement, 12 other firms – including Citi, HSBC and UBS – preliminarily agreed to pay a total of $250 million. Individual loss amounts have not been reported. The settlements include significant GSE market-specific antitrust compliance measures, including “rigorous” employee training; the establishment of a culture of compliance; dedicated resources for oversight; and periodic assessments by the Pennsylvania Treasury. As of December, the banks denied any wrongdoing.
Fourth, Russia’s central bank announced that unidentified individuals had stolen cash and securities totalling 3 billion rubles ($47.6 million) from Nevsky Bank. This amount significantly exceeds the bank's total assets. Consequently, the central bank revoked Nevsky Bank’s licence and installed temporary management before appointing a bankruptcy trustee or liquidator.
It is thought the bank converted funds from its correspondent account into cash and attracted client funds before the theft. The theft reportedly occurred in the first 10 days of December. The Deposit Insurance Agency of Russia will reimburse Nevsky Bank account-holders. The central bank also found that Nevsky Bank had repeatedly broken federal banking laws.
Finally, a Berkshire Hathaway subsidiary, Government Employees Insurance Company, preliminarily agreed to pay $33.1 million to settle class action claims that it wrongly withheld unavoidable title transfer fees and other replacement costs for covered total loss vehicles in Florida. In July, a federal judge found that the actual cash value of a vehicle should include these fees.
The class comprises over 250,000 Geico customers who had filed claims for totalled cars since 2012. Geico agreed to pay $27.5 million in cash available for the class to cover the cost of the fees and $5.6 million in attorneys’ fees. Geico will also amend its practices to include transfer fees on all first-party total loss claims upon approval of the settlement. This change is estimated to save Florida drivers $28 million over five years. As of December, the settlement required approval.
Spotlight: UBS employee wins $11m defamation claim
An arbitration panel of the US Financial Industry Regulatory Authority (Finra) ordered UBS to pay $11.2 million in damages, costs and fees in December following a defamation claim first filed in June 2018 by former employee Mark Munizzi.
UBS reportedly fired Munizzi from his position as a market operations supervisor in April 2018 after two accounts he oversaw lost value during a steep market decline two months earlier. UBS claimed that Munizzi had failed to act on margin calls and lied during an internal review of the incident. UBS also claimed that Munizzi had failed to properly supervise the risks of an uncovered options strategy.
However, Munizzi said that he was not notified about the margin calls on the two accounts and that when he did become aware of the issues, he took immediate steps to cover the unsecured positions.
Munizzi alleged that UBS had defamed him through the description provided in his Form U5 and that this prevented him from finding a new job in the industry. Munizzi also said that he was owed severance from UBS and that UBS had violated the Illinois wage Payment and Collection Act.
The panel ordered UBS to pay $11.2 million to Munizzi and $39,000 in Finra fees, and recommended amendments to Munizzi’s Form U5. As of December 2019, UBS denied all allegations.
In focus: Regulatory fines fall sharply in 2019
The total loss severity of large regulatory fines – those over $1 million – halved from $10.20 billion in 2018, to $4.98 billion in 2019, ORX News data shows. While the severity of losses plummeted by 49%, total loss frequency decreased by only 10%, from 202 to 182 events.
Unsurprisingly, loss severity in relation to regulatory fines remains highest in North America, where regulators continue to impose more penalties than their counterparts elsewhere. This is despite a significant decrease in both frequency and severity in the region since 2018.
The UK’s Financial Conduct Authority upped its fines dramatically in 2019 however, imposing almost twice as many penalties on financial institutions than the previous year, costing banks £258.4 million ($332.8 million) and insurers £53 million. This is up from £53.1 million and £5.3 million in 2018.
One possible explanation for the overall decrease in fines is alternative actions taken by regulators. For example, the US Securities and Exchange Commission’s share class initiative saw 96 firms return over $135 million to investors last year. The firms had failed to disclose conflicts of interest related to the sale of mutual fund share classes. All but one self-reported to the SEC, which saw them avoid financial penalties.
Editing by Alex Krohn
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