Brussels, 11 June 2002
Commission fines eight Austrian banks in « Lombard Club » cartel case
Today the Commission imposed fines totalling € 124,26 million on eight Austrian banks for their participation in a wide-ranging price cartel. In a highly institutionalised price-fixing scheme, the CEOs of the banks met every month, except August, as the "Lombard Club", a cartel which covered the entire Austrian territory "down to the smallest village", as one bank put it with a view to fixing deposit, lending and other rates to the detriment of businesses and consumers in Austria. The cartel started well before the accession of Austria to the European Economic Area in 1994. But in this case, the Commission can only levy fines for the period starting with EU membership (1995) until June 1998, when it carried out surprise inspections at the banks' premises putting an end to the cartel behaviour.
Competition Commissioner Mario Monti declared, "The institutionalised set-up of this cartel and its comprehensiveness, both in terms of the banking services covered and geographical scope, makes it one of the most shocking cartels ever discovered by the Commission. Banks should be in no doubt that they are subject to European Union competition rules just like any other sector. In fact, maintaining competition in the banking sector is particularly crucial, considering the importance of the banking sector for consumers, businesses and the efficient allocation of resources in the economy as a whole".
The break down of the fines by bank is as follows (€ million):
Erste Bank der österreichischen Sparkassen AG ( Erste) 37,69
Bank Austria Aktiengesellschaft: (BA) 30,38
Raiffeisen Zentralbank Österreich AG: (RZB) 30,38
Bank für Arbeit und Wirtschaft Aktiengesellschaft (BAWAG) 7,59
Österreichische Postsparkasse Aktiengesellschaft (PSK) 7,59
Österreichische Volksbanken AG (ÖVAG) 7,59
NÖ Landesbank-Hypothekenbank AG (NÖ Hypo) 1,52
Raiffeisenlandesbank Niederösterreich-Wien reg Gen mbH (RLB) 1,52
Following reports in the Austrian press, the Commission accompanied by officials from the Austrian Ministry for Economic Affairs conducted simultaneous surprise inspections at a number of Austrian banks in June 1998.
The hundreds of documents found -- minutes of meetings, memoranda, records of telephone conversations, correspondence, etc. unearthed a network of cartel committees which covered the whole of Austria and all banking products and services as well as advertising, or rather the lack of it. The cartel members fixed interest rates for loans and savings for private/household and for commercial customers as well as the fees consumers had to pay for certain services. The cartel also extended to money transfers and export financing.
The object of the Lombard cartel is expressed succinctly by the "host" of one of the illicit meetings in Febrary 1995 when he welcomed the other participants with the following words(1): "The exchange of experience between banks in relation to interest rates has repeatedly proved to be a useful means of avoiding uncontrolled price competition. In this vein, today's meeting […] should likewise ensure a focused and reasonable approach of all banks with regard to pricing . The way in which interest rates are currently being set shows very clearly that it is again necessary for us to sit down together and counteract problematic price developments[…] [I] hope, in the interests of your institutions, that constructive solutions will be found".
The documents seized showed that the banks were aware of the antitrust implications of their behaviour. For example, one participant at a cartel meeting suggested that, as a precaution, in future "no more minutes should be kept of such meetings". The legal department of one bank was also consulted on the matter and recommended: "Destruction of all existing records".
The Commission has considered the Austrian banks' behaviour to amount to a very serious infringement of the competition rules laid down in Article 81 of the EU Treaty.
« Down to the smallest village »
The cartel network was comprehensive as regards its contents, highly institutionalised and closely interconnected, and covered the entire country - "down to the smallest village", as one bank put it. For every banking product there was a separate committee on which the competent employee at the second or third level of management sat.
Each month, except August, the Chief Executive Officers of the largest Austrian banks got together as the top-level body dubbed "Lombard Club". One level down were the product-based specialist committees. The most important ones were the "Lending Rates Committees", the "Deposit Rates Committees" and a pan-Austrian committee called Federal Lending and Deposit Rates Committee in which bank representatives from Vienna met with their opposite numbers from the provinces.
A constant flow of information took place between the various committees as well as between them and the top-level Lombard Club. In controversial cases, the Lombard Club's guidance was awaited, while in the case of less important decisions, confirmation "by the CEOs at the next Lombard" was "considered unnecessary".
Between January 1994 and the end of June 1998, in Vienna alone at least 300 meetings took place.
What often triggered a committee meeting to be convened was a change in the key lending rates by the Austrian Central Bank, whereupon the banks promptly met "for the joint reflection of measures to be taken ".
On these occasions, each participant would start by re-stating the rates applied at that particular moment and what reaction (i.e., interest rate reduction or increase by a certain amount) each bank would consider appropriate.
Most Austrian banks participated in the cartel, but a careful analysis of the cartel meetings showed that the eight banks fined played a key role.
To calculate fines in cartel behaviour, the Commission takes account of the gravity of the infringement, its duration and the existence of any aggravating or mitigating circumstances. It also takes account of a company's ability to harm competition on a given market. Where there is considerable disparity in the size of the parties, the Commission places them in different groups so that parties with roughly similar market shares pay similar fines.The calculation of the fines is, therefore, not made solely with reference to a company's turnover although, under Regulation 17/62, the fine can never exceed 10% of a company's total annual turnover.
The Commission reduced the fines calculated to take into account the co-operation afforded by the companies to the Commission while it was conducting its investigation (under the so-called "Leniency Notice" of 1996). As the banks did not contest the facts set out in the statement of objections, a reduction of 10% was granted.
The companies have three months to pay the fines, which will go into the general budget of the European Union. Since the EU budget is financed by Member States' contributions the fines will ultimately benefit the European taxpayer.
(1)All quotes are taken from documents seized at the banks premises.