Big banks close to $1.9B settlement in price-fixing case

By Bernard Condon
AP Business Writer

NEW YORK (AP) — Twelve major banks have tentatively agreed to pay $1.87 billion to settle allegations that they colluded to fix prices and lock out competitors in the market for insurance-like products widely traded before the financial crisis, according to a lawyer for investors.

The deal, if finalized, would be one of the largest U.S. anti-trust settlements, said Daniel Brockett, a lawyer representing a Los Angeles pension fund among other plaintiffs. He said the final terms need to be hammered out, and a judge would still need to approve the deal.

Bank of America, JPMorgan Chase, Citigroup and other banks met secretly to kill proposals that would put the trading of these insurance-like products onto an exchange through which they could be bought and sold like stocks and their prices made more transparent, according to a complaint filed in U.S District Court in New York. In keeping trading private in a “rigged” market, the banks cheated investors out of billions of dollars, the complaint alleges.

The banks have denied allegations of wrongdoing. They do not face criminal charges.

The settlement was first reported by Bloomberg News.

Credit default swaps figured prominently in the financial crisis, notably in the near-collapse of American International Group, a giant insurer that sold protection to investors in home mortgages but couldn’t pay out on the policies when the housing market crashed. AIG eventually received $182 billion in a government bailout.
The case against the banks involves swaps they handled starting in the fall of 2008, at the start of financial crisis when Lehman Brothers collapsed, triggering the biggest global economic downturn since the 1930s.

The case is before U.S. District Judge Denise Cote.