Regulators Investigate Banks For Lying About Investor Interest In European Bond Market

Tyler Durden's picture

A year ago we discovered that several European countries only managed to squeeze into the Eurozone by misrepresenting their total debt courtesy of Goldman Sachs facilitated currency swaps which misrepresented the true state of said countries' finances. Yesterday it was revealed that at least one Spanish region had been openly lying about its economic performance and underrepresented its budget deficit by about 50%. Today we go deeper into the rabbit hole, after a WSJ report discloses that European banks 'may' have been openly and frequently lying by misrepresenting to others about the amount of third party demand at any given bond auction. Think of it as the same BS that a bulge bracket bank in the US will use to sucker retail momo investors into a hot IPO. "A European self-regulatory body is looking at whether that perennial optimism might have at times been misleading for investors in the European debt markets, according to people familiar with the matter. The International Capital Market Association, or ICMA, is examining whether banks have been improperly exaggerating the amounts of investor demand they are seeing in certain bond sales, including for debt issued by European governments, these people say." Where does the rabbit hole lead next: someone discovers that the Bid To Cover ratio in all US bond auctions over the past several years have really been 50% lower than represented publicly? As for Europe: does anyone believe anything coming out of that continent anymore following the whole Jean-Claude Juncker fiasco? The Eurozone and the euro are both doomed and everyone knows it. But all is fair in love and perpetuating doomed ponzi pyramids (which is not to say that the US is any better).

From the WSJ:

The action by ICMA has been sparked by complaints from some banks and investors that some lenders talked up investor interest in some bond deals in an attempt to whet investors' appetites for potentially risky bonds, such as those issued to support ailing euro-zone countries, these people say.

Some bankers say the complaints and ICMA's inquiry have the potential to reduce demand for European sovereign debt. Financially shaky European governments in the past year have struggled to raise debt via the capital markets.

ICMA, a Zurich-based trade association that sets guidelines for conduct in equity and debt markets, has been looking into the complaints for months, according to people familiar with the situation. The group is likely soon to issue guidelines to its members discouraging such exaggerations, these people added.

ICMA doesn't have powers to compel banks to change their behavior and isn't in contact with national regulators, but the planned guidelines are a sign of concern at an issue that has been widely regarded as a gray area in financial markets for years. There is no indication that the practice is illegal.

To be sure, among the legitimate complaints there are those coming from investors who have gotten burned and are now simply looking for ways to undo the transaction and in the process get a few settlement pennies:

The complaints involve a standard industry practice. When marketing a bond sale, banks offer would-be investors informal hints about how much demand there is for the debt, according to bankers and investors. That guidance influences the size of the orders that investors place. If there is heavy demand for a certain bond, investors generally enlarge their bids to ensure they get at least a piece of the action.

While the art of salesmanship often relies on an element of bluff, investors and some banks have complained to ICMA that some underwriting banks went too far. They complain that banks selling debt claimed there was greater demand for certain deals than there really was.

They say investors bought many more bonds than they had planned because they were led to believe they needed to place big orders or miss out, according to numerous banks and industry officials.

But the reality is that at its core this was a pervasive practice: just look at the excesses of our own IPO booms during the first and second (and still continuing at least until Groupon prices) dot com boom.

One deal under scrutiny is a "covered bond" issued by Spain's Banco Santander SA last month, one person said. A covered bond is backed by collateral that stays on a bank's balance sheet, in this case, Santander's loans to Spanish regional and local governments.

The deal was managed by HSBC Holdings PLC, Société Générale SA, Commerzbank AG and Santander itself. ICMA members have raised concerns that during the sale process, one or more of the banks told potential investors that they had lined up about €1.5 billion ($2.1 billion) of orders, exceeding the original size of the planned €1 billion offering, according to people familiar with the matter.

But the deal fell flat. Investors balked at the prospect of exposing themselves to Spain's shaky economy. In order to move the €1 billion of debt, the underwriting banks had to buy hundreds of millions worth themselves, these people say. The banks declined to comment.

Regardless of the final findings (and with banks being involved, we are confident the investigation will be promptly muzzled), the aftereffects will linger as at least the retail base, or those not trading with other people's money, loses even more interest in participating in what is increasingly becoming a rigged market: first in equities, and now in bonds.

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MarketTruth's picture

Impossible? ;-)

Zero Hedge wrote:
"A year ago we discovered that several European countries only managed to squeeze into the Eurozone by misrepresenting their total debt courtesy of Goldman Sachs facilitated currency swaps which misrepresented the true state of said countries' finances."

And in YESTERDAY'S Fed minutes:
"In light of ongoing strains in some foreign financial markets, the Committee considered a proposal to extend its dollar liquidity swap arrangements with foreign central banks past August 1, 2011. Following their discussion, members unanimously approved the following resolution:

The Federal Open Market Committee directs the Federal Reserve Bank of New York to extend the existing temporary reciprocal currency arrangements ("swap arrangements") for the System Open Market Account with the Bank of Canada, the Bank of England, the European Central Bank, the Bank of Japan, and the Swiss National Bank. The swap arrangements shall now terminate on August 1, 2012, unless further extended by the Committee."

zorba THE GREEK's picture

 I find this difficult to believe, that banks would lie.

 Is there nothing sacred anymore. The next thing they'll be saying, is that governments lie.

 Whose making these absurd accusations? 

Downtoolong's picture

Someone in the financial industry over selling the value of an investment. When did this ever not happen, and how many minutes was it before the person doing it got fired?

shinola's picture

Banks are being investigated for lying!?!


I am SHOCKED, shocked I tell you...

knukles's picture

See.  See.
Lookit all the testimony!

Toldja it was Impossible!

smlbizman's picture

the hedge, the hedge, the hedge is on fire tonight....

nonclaim's picture

“When it becomes serious, you have to lie” -- Jean-Claude Juncker

Sqworl's picture

LMAO...Homer..with bases loaded..

jbc77's picture

Europe overstating interest in auctions? Ya don't say. Funny this subject should come up because I always scratch my head at some of the interst the U.S paper seems to draw. Esepecially yeilding effectively nothing in some cases.

Oh regional Indian's picture

Indeed, the under-arm of the ponzi begins to show in that case, eh? 

Pardon me arsehole, your undie is showing.

Think GB and the Dutch buying UST. Makes no sense. At all. None.

As always, plausible deniability rules.



Number Yuan's picture

I talked to my favorite bank manager about lying and the imminent collapse...

and he left a deposit on the floor.

knukles's picture

Actually, Tyler. 
While you mention something like "first in equities, then in bonds" having been on both sides the street and numerous asset classes, I'd suggest that the real skulduggery as you're describing is substantially more prevalent in the fixed income markets than equities....
More lightly regulated, no organized exchanges (all OTC), homes of the interest rate, credit default, etc. swaps.... very murky.  Hard to discern.  Why, just think of the discussions over the years about lack of viable quotes on bonds...etc.

And if you want murky, dive head first off the high board into the shallow end, smack dab into the rabbit hole, Alice, mushrooms and all, go for munis.  I mean, the pay to play games, bid rigging, known about by everybody, generally held knowledge, but opaque as one big fresh laid cow pie.

Ummmm um.   

MrBinkeyWhat's picture

No! Really! Can you imagine my shock! Gummint MF's LYING!!! OK, enough Exclamation points. But really. Or not. If the hypocrisy was any thicker we would all be breathing thru tubes.

slewie the pi-rat's picture

complaints?  please put them in the basket on the floor over there.  yes, the round one.  thank you.  we'll be in touch, or you can just call our 800 # and talk to someone in asia. 

oh, you're very welcome.  that's why we're here:  to help you. 

trampstamp's picture

Sounds like the banker I spoke to today. Must be part of the hand book.

oldman's picture


Europe is doomed except for the Swiss, Norwegians, Swedes, Finns, Germans, Dutch, Danes, and who else? I am really quite ignorant on Europe(as well as everything else).

The Chinese are going down from what I read on ZH as well as the Japanese and again: ignorance.

Now the US of A is not in good shape, but there is no doubt that quite a few of our states are aslready in default or bankrupt.

I only know what I read here on ZH-----So I need to ask the question

Why is the Euro the only currency that we trash day after day?

How is the dollar stronger absent the nuclear threat that the US poses to the rest of the world? The economy here appears to be weaker than the rest of the nations in the developed world and its debt is nearly in the same category and its capacity to recover weaker than anytime in its history.

Come on dudes, help an old man out on this; he just does not comprehend why the Euro seems to be the whipping boy of the world according to MSM and here at ZH.

ViewfromUndertheBridge's picture

European banks are buying dollars...through their US Primary Dealer subsidiaries. That is where QE2 Tyler showed and the rest of the world is starting to digest

So, the worse it gets in Europe and the greater the need those banks have for cash and reserves, the more those banks buy US dollars to buy USTs etc, which for them are money good on their balance, they can lever them up.

So, Ron Paul's suggestion that the Fed just eat the $1.6Trln in USTs would blow-up Europe....the end of the Ponzi.

Every time there is a "flight-to-safety" surge in the USD (and your USD short gets fucked) you can now enjoy the added inner-glow of knowing that as a US taxpayer the money that fucked your trade over came from you as well.

In addition, USD is the carry-trade currency of choice now (ZIRP) so all risk-off days sees USD buying to close out those trades...ZIRP paid for by you, too.

Thank you for asking.

oldman's picture


I understand the above, however I am not understanding how, when the house of cards falls, it will make the Euro worse than the dollar.

If this shit comes apart or 'when' it does----everyone will be 'in a world o' hurt'.

Do you think that the fed or treasury will get those dollars back? In this kind of Ponzi when the music stops there won't be a chair on the planet that is not made of pm's; this is an end game not a depression. They will take the money and run to buy your gold.


I suppose I was looking for some reason or reasons that were more rational and 'economic' rather than endgamish, but you are probably right----no explanation will cover up the larceny of this madness; it is an irrational universe we inhabit----of our own making.

Thanks for the help and good luck on your trades          om

buzzsaw99's picture

if it were me, i'd bet everything. [/john candy]

treasurefish's picture

RE √ Ω L U T ↑ Ø N 
RON PAUL  2012!!!

StormShadow's picture

I'd rather put my money with Bernie Madoff than any developed country government leader right now. I mean, hell, what Enron did is nothing compared to what our Fed does every day. Good grief!

max2205's picture

I hope I live to see the truth play out and those responsible put to death :)

honestann's picture

I hope you do.  But the chances are not good.

Everyman's picture

How about the MBS and the CDO's and the Credit Default swaps?  Let alone all the mortgage trash on the books.  Commercial and Residential Real Estate that has gon backwards in value in all the loans, and the laons that never will be paid or foreclosed.

How big do they have to "eat it" before they choke on their own corruption.

They all deserve to be "piked" in front of their own banks.

TK7936's picture
One Currency to rule them all,
One Currency to find them,
One Currency to bring them all,
And in the darkness bind them.
honestann's picture

Why anyone believes anything that anyone in the financial markets says is totally beyond me.  How much overt, in-your-face corruption do people need to witness before they stop cooperating with predators?

Get physical.  Get gold instead.

Popo's picture

Because unfortunately it's not that simple.  I wish it was.  But the long arm of gubmint can fuck with you even if you hold gold.

Yes,  buy gold.  But don't put all your eggs in one basket.

When they tax your gold transactions at 80%,  who will be the buyers?

When they levy customs export tax on gold at 80% where will you take your gold to find buyers?

Think it won't happen?   It *absolutely* will happen.



honestann's picture

Oh, and get the hell out of the USSA, like I did.

Convenient?  Not so much.

Worth it?  Damn straight!

honestann's picture

News flash.  While almost nobody was looking, 6 billion humans were abducted from planet earth, and replaced with sheep.

Paul Thomason's picture

A 'reasonable' settlement should fix this problem. No worries here, move along people.

Atomizer's picture

Obama's 2012 election campaign playbook documents must have been leaked.

We should all embark on new lying skills to fool the masses into financial obviation/banker servatude.

oldman's picture


This is sort of what I was afraid of----we are all just parrots babbling incessantly about the confusion and hysteria on the street.

Maybe, fundamentally and technically it is all the same.


gwar5's picture

The EU and NWO has all been built on lies? 

Say it ain't so.... Party is barely getting started and we're already tripping over bodies?  This won't do at all.

The sooner the EU crashes and the Euro elite-trash is taken to the dump, the sooner we can bury the horrible  notion of a global marxist-style governance by the even bigger NWO body of unelected more-of-same.

oldman's picture


How is that going to bail out this sinking ship?

I don't care----just asking what that does forus---US of A?

Peter K's picture

Goldman might have been the facilitators, but everybody knew what was being facilitated, the Greeks as well as the EU. And now they are shocked,.... shocked:)

HankPaulson's picture

"Regulators Investigate Banks For Lying About Investor Interest In European Bond Market "

You say that like there might be some problem.

Since human society is nested within the "free" market and not vice versa, if someone makes a profit (from lying), you should rejoice.

midnight's picture

From the article: "A year ago we discovered that SEVERAL European countries only managed to squeeze into the Eurozone by misrepresenting their total debt courtesy of Goldman Sachs facilitated currency swaps which misrepresented the true state of said countries' finances. "


Which are those "SEVERAL" countries and where is the link that proves it?