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Secret Libor Transcripts Expose Trader Rate-Manipulation
By Liam Vaughan & Gavin Finch - Dec 13, 2012 4:01 PM GMT
Simon Dawson/Bloomberg
The Royal Bank of Scotland Group Plc (RBS) company's headquarters in London.
Every morning, from his desk by the bathroom at the far end of Royal Bank of Scotland Group Plc’s trading floor overlooking London’s Liverpool Street station, Paul White punched a series of numbers into his computer.
White, who joined RBS in 1984, was one of the employees responsible for the firm’s submissions to the London interbank offered rate, or Libor, the global benchmark for more than $300 trillion of contracts, from mortgages and student loans to interest-rate swaps. Behind him sat Neil Danziger, a derivatives trader at the bank since 2002. On the morning of March 27, 2008, Tan Chi Min, Danziger’s boss in Tokyo, told him to make sure the next day’s submission in yen would increase.
“We need to bump it way up high, highest among all if possible,” Tan, known by colleagues as “Jimmy,” wrote in an instant message to Danziger, according to a transcript made public by a Singapore court and reviewed by Bloomberg before being sealed by a judge at RBS’s request.
The trader typically would have swiveled in his chair, tapped White on the shoulder and relayed the request, people who worked on the trading floor said. Instead, as White was away that day, Danziger input the rate himself.
The next morning RBS said it paid 0.97 percent to borrow in yen for three months, up from 0.94 percent the previous day. The Edinburgh-based bank was the only one of 16 surveyed to raise its rate. If it had lowered its submission in line with others, the cost of borrowing in yen would have fallen one-fifth of a basis point, or 0.002 percent, according to data compiled by Bloomberg. Even that small a move could mean a gain of $250,000 on a position of $50 billion.
Dirty Dicks
Events like those that took place on RBS’s trading floor, across the road from Bishopsgate police station and Dirty Dicks, a 267-year-old public house, are at the heart of the biggest and longest-running scandal in banking history.
UBS Said to Face Fines of More Than $1 Billion in Libor Probes
For years, traders at RBS, Barclays Plc (BARC), UBS AG (UBSN), Deutsche Bank AG (DBK), Rabobank Groep and other firms that stood to profit worked with employees responsible for setting the benchmark to rig the price of money, according to documents obtained by Bloomberg and interviews with two dozen current and former traders, lawyers and regulators. Those interviews reveal how the manipulation flourished for years, even after bank supervisors were made aware of the system’s flaws.
‘Financial Fraud’
The conspiracy wasn’t confined to low-level employees. Senior managers at RBS, Britain’s largest publicly owned lender, knew banks were systematically rigging Libor as early as August 2007, transcripts of phone conversations obtained by Bloomberg show. Some traders colluded with counterparts at other banks to boost profits from interest-rate futures by aligning their submissions. Members of the close-knit group knew each other from working at the same firms or going on trips organized by interdealer brokers such as ICAP Plc (IAP) to Chamonix, a French ski resort, or the Monaco Grand Prix.
“We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time,” said Adrian Blundell-Wignall, a special adviser to the secretary general of the Organization for Economic Cooperation and Development in Paris. “Libor is the basis for calculating practically every derivative known to man.”
Now, more than five years after alarms first sounded, regulators and prosecutors are closing in. Three people, including a former trader at UBS and Citigroup Inc. (C), were arrested in London this week in connection with the probe into rate manipulation, the first apprehensions in an investigation involving more than half a dozen agencies on three continents.
Barclays Fine
Barclays paid a record 290 million-pound ($468 million) fine in June to settle with regulators, and the London-based lender’s three top executives, including Chief Executive Officer Robert Diamond, departed after criticism by bank supervisors and politicians. Other firms, including RBS and Zurich-based UBS, are negotiating settlements, according to people with knowledge of the discussions. UBS may face a fine of more than $1 billion from U.S. and British regulators within days, a person with knowledge of the investigation said today. Spokesmen for Barclays, RBS and UBS declined to comment.
The industry faces regulatory penalties of at least $8.7 billion, according to Morgan Stanley. (MS) The European Union is leading a probe that could see banks fined as much as 10 percent of their annual revenue. Dozens of lawsuits have been filed in the U.S. and U.K. claiming losses on products pegged to Libor.
Light Touch
The scandal demonstrates the failure of London’s two-decade experiment with light-touch supervision, which helped make the British capital the biggest trading hub in the world. In his 10 years as Chancellor of the Exchequer, Gordon Brown championed this approach, hailing a “golden age” for the City of London in a June 2007 speech. Even after the FSA pledged to toughen its rules following the 2008 financial crisis, supervisors failed to act on warnings that the benchmark was being manipulated.
Regulators have known since at least August 2007 that banks were using artificially low Libor submissions to appear healthier than they were. That month, a Barclays employee in London e-mailed the Federal Reserve Bank of New York, questioning the numbers that other banks were inputting, according to transcripts published by the New York Fed.
Nine months later, Tim Bond, then head of asset allocation at Barclays’s investment bank, publicly described the Libor figures as “divorced from reality,” saying in a Bloomberg Television interview that firms were routinely misstating their borrowing costs to avoid the perception they were facing stress.
No Responsibility
The New York Fed and the Bank of England say they didn’t act because they had no responsibility for oversight of Libor. That fell to the British Bankers’ Association, the industry lobbying group that created the rate and largely ignored recommendations from central bankers after 2008 to change the way the benchmark is computed. Regulators also were preoccupied with the biggest financial crisis since the Great Depression, and forcing banks to be honest about their Libor submissions might have revealed they were paying penalty rates to borrow.
Libor is calculated daily through a survey of banks asking how much it costs them to borrow in different currencies for various durations. Because it’s based on estimates rather than actual trade data, the process relies on the honesty of participants. Instead, derivatives traders at banks around the world sought to influence their firms’ Libor submissions and managers sometimes condoned the practice, according to documents and transcripts of instant messages obtained by Bloomberg.
Some former regulators say they were surprised to learn about the scale of the cheating.
Greenspan ‘Wrong’
“Through all of my experience, what I never contemplated was that there were bankers who would purposely misrepresent facts to banking authorities,” Alan Greenspan, chairman of the U.S. Federal Reserve from 1987 to 2006, said in a phone interview. “You were honor-bound to report accurately, and it never entered my mind that, aside from a fringe element, it would be otherwise. I was wrong.”
Sheila Bair, a former acting chairman of the U.S. Commodity Futures Trading Commission and chairman of the Federal Deposit Insurance Corp. from 2006 to 2011, said the scope of the scandal points to the flaws of light-touch regulation.
“When a bank can benefit financially from doing the wrong thing, it generally will,” Bair said in an interview. “The extent of the Libor manipulation was eye-popping.”
Libor debuted in 1986, the year British Prime Minister Margaret Thatcher’s so-called “Big Bang” program of financial deregulation fueled a boom in London’s bond and syndicated-loan markets. It was intended to be a simple benchmark that borrowers and lenders could use to price loans.
Gaming Libor
In 1997, the Chicago Mercantile Exchange switched the rate used in pricing Eurodollar futures contracts to Libor, solidifying its position as the principal benchmark for the swaps market, which by June 2012 had a notional value of $639 trillion, according to the Bank for International Settlements.
That decision created a temptation for swaps traders to game Libor, particularly in the days before International Money Market or IMM dates, when three-month Eurodollar futures settle. The value of traders’ positions, often billions of dollars, was affected by where the dollar Libor rate was set on the third Wednesdays of March, June, September and December.
The manipulation of Libor was discussed openly at banks.
“We have an unbelievably large set on Monday,” one Barclays swaps trader in New York e-mailed the firm’s rate- setter in London on March 10, 2006. “We need a really low three-month fix, it could potentially cost a fortune.”
The rate-setter complied with the request, according to Britain’s Financial Services Authority, which published the e- mail following its investigation of the bank’s role.
Borrowing Costs
The 2007 credit crunch increased the opportunity to cheat. With banks hoarding cash and not lending to one other, there was little trading in money markets, making it impossible for rate- setters to assess borrowing costs accurately. Instead, traders said they resorted to seeking input from interdealer brokers, colleagues and acquaintances at other firms, many of whom stood to benefit from where the rate was set. They described it as legitimate information-sharing in the absence of trading.
On Aug. 20, 2007, days after BNP Paribas SA (BNP) halted withdrawals from three funds, forcing the European Central Bank to offer lenders unlimited cash and marking the start of the credit crisis, Paul Walker, RBS’s head of money-markets trading and the person responsible for U.S. dollar Libor submissions, discussed with Scott Nygaard, then Tokyo-based head of short- term markets for Asia, how banks were using Libor to benefit their trading positions.
‘Yeah, Yeah’
“People are setting to where it suits their book,” Walker said in a phone call with Nygaard, a transcript of which was obtained by Bloomberg. “Libor is what you say it is.”
“Yeah, yeah,” replied Nygaard, an American who joined RBS in 2006 after six years at Deutsche Bank in Japan.
Walker and Nygaard, now global head of treasury markets based in London and a member of the Bank of England’s money- markets liaison group, both declined to comment.
Each day, the BBA asks banks to estimate how much it would cost them to borrow in 10 currencies for periods ranging from overnight to one year. The top and bottom quartiles of quotes are excluded, and those left are averaged and made public before noon in London. Submissions from contributing banks also are published. The dollar Libor panel consists of 18 banks, while the one for sterling has 16, and 13 firms set the yen rate.
It didn’t take a conspiracy involving large numbers of traders at different firms to move the rate. By nudging their submissions, traders at a single bank could influence where Libor was fixed. Even inputting a rate too high to be included could push up the final figure by sending a previously excluded entry back into the pack. A move in Libor of less than 1 basis point, or one-hundredth of a percentage point, could be valuable for traders managing billions of dollars in swaps.
No Training
“If you have a system like Libor, where highly subjective quotes are built into the process, you have a lot of opportunity for manipulation,” said Andrew Verstein, a lecturer at Yale Law School in New Haven, Connecticut, and co-author of a paper on Libor rigging to be published in the Winter 2013 issue of the Yale Journal on Regulation. “You don’t need a cartel to make Libor manipulation work for you. It certainly wouldn’t hurt, but it didn’t have to happen.”
At UBS, Deutsche Bank, Barclays, Rabobank, RBS and JPMorgan Chase & Co. (JPM), rate-setters were given no training or guidelines for making submissions, according to former employees who asked not to be identified because investigations are continuing. At RBS and Frankfurt-based Deutsche Bank, derivatives traders on occasion made their firm’s submissions, they said. Spokesmen for all the banks declined to comment.
Heat Wave
As the credit crisis intensified in the fourth quarter of 2007, Libor was a closely scrutinized gauge of the health of financial firms. After years of relative stability, the benchmark became more volatile. The average spread between the highest and lowest submissions to the three-month dollar rate widened to about 8 basis points in the three months ended Oct. 30, 2007, from about 1 basis point in the previous three months, data compiled by Bloomberg show.
The volatility drew the attention of investors and regulators. As Japan endured its most intense heat wave in 100 years on August 20, 2007, a sales manager at RBS in Tokyo received a call from a trader at hedge fund Brevan Howard LLP in Hong Kong, according to two people with knowledge of the matter.
RBS’s rate-setter in London had increased the bank’s submission for three-month yen Libor by 9 basis points from the end of the previous week, helping to push the benchmark to its highest level since 1995.
Instant Messages
Brevan Howard wanted to know why the rate jumped, even after the Fed had announced unprecedented steps to boost liquidity at the end of the week, something that should have lowered the measure, the people said.
RBS employees in London and Tokyo discussed the hedge fund’s call in instant messages. Nygaard phoned Walker in London to say RBS should be “careful how we speak with them about what we, how the rate is set,” according to a transcript of an instant-message conversation obtained by Bloomberg.
On a conference call later that day that included Walker and Darin Spilman, an RBS sales manager, Danziger told the Brevan Howard trader how the bank calculated its submissions in the absence of any cash trading and gave his views on what he expected to happen to the Tokyo interbank offered rate, or Tibor. Danziger, Spilman, Walker, Nygaard and Tan declined to comment, as did Anthony Payne, a spokesman for Brevan Howard in London.
‘Unrealistically Low’
About a week later, on Aug. 28, 2007, Fabiola Ravazzolo, an economist on the financial-stability team at the New York Fed, received an e-mail from a member of Barclays’s money-markets desk in London, accusing the firm’s competitors of making artificially low Libor submissions, according to transcripts published by the regulator that didn’t identify the sender.
Barclays that day had submitted the highest rate to three- month dollar Libor, while the lowest was posted by London-based Lloyds Banking Group Plc (LLOY), suggesting Barclays was having more difficulty obtaining funding than Lloyds, a bank later bailed out by the U.K. government.
“Today’s U.S. dollar Libors have come out and they look too low to me,” the e-mail said. “Draw your own conclusions about why people are going for unrealistically low Libors.”
Lloyds, in an e-mailed statement, declined to comment on what it called “speculation by traders at other banks.”
It wasn’t until the following year, prompted by a March 2008 report by the Bank for International Settlements and an April article in the Wall Street Journal suggesting banks were lowballing their submissions, that the New York Fed and the Bank of England asked the BBA to review the rate-setting process.
Geithner Memo
In June 2008, New York Fed President Timothy F. Geithner sent a memo to Bank of England Governor Mervyn King and his deputy, Paul Tucker, putting forward a list of recommendations for fixing Libor, including increasing the number of contributing banks, basing the rate on an average of randomly selected submissions and cutting maturities in which little or no trading took place.
“These are pretty modest reforms, they probably wouldn’t have invalidated contracts and they might have reduced some of the abuses,” Yale’s Verstein said. “On the other hand, it would likely have caused Libor to go up, which could have affected a great many people.”
Aside from creating a committee to review questionable submissions and promising to increase the number of contributors to dollar Libor, the BBA chose not to implement Geithner’s suggestions. Angela Knight, then the group’s CEO, said in a December 2008 statement that Libor could be trusted as “a reliable benchmark.”
‘Wholly Inadequate’
Privately, regulators were skeptical. As the BBA was drafting its proposals, King wrote to colleagues including Tucker on May 31, 2008, describing the group’s response as “wholly inadequate,” according to documents released by the Bank of England in July. Rather than press the BBA to change the way Libor was set, the Bank of England, the FSA and the New York Fed demanded that any references to them be removed from the BBA review, the e-mails show.
A spokesman for the Bank of England said Britain’s central bank “had no supervisory responsibilities” for Libor at the time. The New York Fed also “lacked direct authority over Libor” and didn’t want to be seen endorsing a private association’s plan, according to Jack Gutt, a spokesman. The New York Fed continued to press for reform through 2008, he said.
‘Reliable Benchmark’
Liam Parker, an FSA spokesman, referred to earlier comments FSA Chairman Adair Turner made to British lawmakers in July that the regulator was in contact with the CFTC at a “very early stage” in the U.S. commission’s investigation. It’s in the nature of such probes that one regulator takes the lead and others assist and decide at a later date whether to get “directly and formally involved,” Turner said.
The BBA said in an e-mail that it’s working with the regulators “to ensure the provision of a reliable benchmark which has the confidence and support of all users.”
By failing to act, regulators allowed rate-rigging to continue over the next two years. At RBS, the abuse was most pronounced from 2008 until late 2010, according to people close to the bank’s internal probe. At Barclays, manipulation continued until the second half of 2009. Japan’s financial services agency banned Citigroup from trading derivatives linked to Libor and Tibor for two weeks in January in punishment for wrongdoing that started in December 2009.
‘Huge Oversight’
Barclays former chief operating officer, Jerry Del Missier, went further, saying that the Bank of England encouraged the lender to suppress Libor submissions. In October 2008, days before RBS and Lloyds sought bailouts, the central bank asked Barclays to lower its quotes because they were stoking concern about the bank’s stability, Del Missier told a panel of British lawmakers July 16. Tucker, the Bank of England deputy director, has said he never gave such instructions.
“It’s not adequate for the authorities to say, ‘We didn’t have responsibility,’” said Paul Myners, a Labour Party member in Parliament’s House of Lords and the U.K. government’s financial-services minister from 2008 to 2010. “It was a huge oversight by the regulators not to realize that Libor and other benchmarks were of such critical importance that they should fall within the regulatory ambit.”
In the end, it was a U.S. regulator without any banking oversight that brought Libor rigging to a halt. Vincent McGonagle, a top enforcement official at the Commodity Futures Trading Commission in Washington, initiated a probe into Libor after reading the April 2008 Wall Street Journal story.
‘So Flawed’
The CFTC sent letters to several banks that fall requesting information, according to a person with knowledge of the investigation. The commission decided it had the authority to act because Libor affects the price of commodities, including futures contracts that trade on the Chicago Mercantile Exchange.
A decade earlier, the CFTC had lost out in an attempt to regulate the market for over-the-counter derivatives, including those pegged to Libor, following the 1998 collapse of hedge fund Long-Term Capital Management LP. The bid was opposed by then-Fed Chairman Greenspan and Treasury Secretary Robert Rubin. In 2000, Congress passed the Commodity Futures Modernization Act, leaving the OTC markets unregulated.
“That’s reflective of the hands-off, light-touch, markets- can-regulate-themselves approach to regulation that has been shown to be so flawed,” Bair said.
‘Vigorously Pursue’
Banks opened their own investigations after the CFTC inquiries. Barclays initially looked into allegations it had lowballed dollar Libor. It appointed Rich Ricci, then co-head of its investment bank, to oversee the inquiry. As the team sifted through thousands of pages of e-mail correspondence and transcripts of instant messages and phone conversations, it uncovered evidence that traders were manipulating the rate both up and down for profit, according to two people with knowledge of the probe.
The CFTC came to the same conclusion in late 2009 or early 2010, according to the person with knowledge of the commission’s inquiry. It happened when Gary Gensler, who had been chairman for less than a year, stood in the foyer of his ninth-floor Washington office as Stephen Obie, acting head of enforcement at the time, played a Barclays tape of a conversation between traders and rate-setters, the person said.
“We had to vigorously pursue this,” Gensler said in a Dec. 9 interview. “Sometimes practice in a market gets confused and over the line, but nonetheless it may still be illegal.”
The Barclays internal probe retained two law firms working outside the bank’s Canary Wharf office and cost 100 million pounds, according to people briefed on the matter. Diamond, who was interviewed during the in-house inquiry, wasn’t made aware of the full extent of the findings until less than a week before the bank announced its settlement in June because of his status as a witness in the probe, the people said.
Traders’ Requests
The settlement revealed how widespread the manipulation was. The bank’s derivatives traders made 257 requests for U.S. dollar Libor, yen Libor and Euribor submissions between January 2005 and June 2009, according to the settlement. The requests for U.S. dollar Libor were granted about 70 percent of the time.
Former Barclays trader Philippe Moryoussef is under investigation by the CFTC, FSA and U.S. Department of Justice for colluding with counterparts at Deutsche Bank, Credit Agricole SA (ACA) and HSBC Holdings Plc (HSBA) to influence Euribor, according to a person with knowledge of the matter who asked not to be identified because the probes are continuing. The Deutsche Bank trader was Christian Bittar, head of money-markets derivatives trading, one of the people said.
‘Blatantly Dishonest’
Thomas Hayes, among those arrested in London on Dec. 11, also is being probed by Canada’s Competition Bureau for rate manipulation along with counterparts at five banks including HSBC, RBS and JPMorgan, according to a person briefed on the investigation. The 33-year-old trader worked with two of the others during his time at RBS in London between 2001 and 2003, two people with knowledge of the matter said.
The extent of the rate-rigging surprised Martin Taylor, Barclays’s CEO from 1994 to 1998.
“Pretty much anything you could do to increase the revenue of your organization appeared legitimate,” Taylor said in an interview. “Here was the market doing something blatantly dishonest. I never imagined that people in the financial markets were saints, but you expect some moral standards.”
Michael Golden, a Deutsche Bank spokesman, said that the conduct of a “limited number” of employees, acting on their own initiative, fell short of the bank’s standards, and that the firm is cooperating with regulators. Spokesmen for Barclays, HSBC and Credit Agricole declined to comment, as did Bittar. Hayes and Moryoussef couldn’t be located through directory and web searches or by contacting former employers.
Wrongful Dismissal
At RBS, managers condoned and sometimes encouraged rate- rigging by employees, according to Tan, who sued the bank for wrongful dismissal in Singapore in December 2011. Tan says executives including Nygaard and Kevin Liddy, global head of short-term interest-rate trading, were aware of the behavior.
Other RBS managers sought to manipulate the benchmark themselves. In an instant-message conversation on Dec. 3, 2007, Jezri Mohideen, then RBS’s head of yen products in Tokyo, instructed colleagues in the U.K. to lower the bank’s six-month Libor submission that day, according to a transcript of the discussion seen by Bloomberg.
“We want lower Libors,” Mohideen said in the chat. “Let the money markets guys know.”
“Sure, I’m setting,” said Will Hall, a trader in London who set the rate that day in the absence of the rate-setter.
“Great, set it nice and low,” Mohideen said.
Hall agreed to set the rate at 1.01 percent and followed through with the request, data compiled by Bloomberg show. No reason was given in the message as to why he wanted a lower bid.
Project Zen
RBS put Mohideen on leave Oct. 12, two weeks after Bloomberg reported the conversation, according to two people with knowledge of the move. White, Danziger and Tan were dismissed in 2011 following the bank’s internal probe into yen Libor known as Project Zen. Andy Hamilton, who traded derivatives tied to the Swiss franc, also was fired in 2011 for trying to influence Libor.
White is now the commercial manager for Welling United football club and writes match-day programs for the Wings, as the non-league soccer team in southeast London is known. On his LinkedIn profile, he describes himself as: “Former trader: looking for employment or a fresh challenge.” He declined to comment, as did Tan, Danziger, Hamilton and Liddy. Mohideen said in a statement issued by his lawyer that he never sought “to exert pressure on anyone to submit inaccurate rates.”
Chamonix Trip
The manipulation of Libor was a common practice in an unregulated market small enough for most participants to know one another personally, investigators found. Traders who worked 12-hour days without a lunch break were entertained by interdealer brokers soliciting business, according to three people familiar with the outings.
In March 2007, five months before the onset of the credit crisis, a dozen traders from firms including Deutsche Bank, JPMorgan and Lehman Brothers Holdings Inc. traveled to Chamonix, according to people with knowledge of the outing. The group, traders of yen-based derivatives, spent a day skiing before gathering over mulled wine at a restaurant. They flew back late on Sunday, in time for a 6 a.m. start the next day.
The trip was organized by London-based ICAP, the world’s biggest interdealer broker, which lines up buyers and sellers of securities and takes a percentage from every trade. Brokers such as ICAP and RP Martin Holdings Ltd., also in London, were sounding boards for those trying to set rates, especially after money markets dried up, traders interviewed by Bloomberg said.
Traders Dismissed
ICAP said in May that it had received requests from government agencies probing banks’ Libor submissions and is cooperating fully. The firm has suspended one employee and placed three others on paid leave pending the outcome of the investigation. Brigitte Trafford, an ICAP spokeswoman, declined to comment. Two RP Martin brokers were arrested in London on Dec. 11 as part of an inquiry into Libor-rigging. RP Martin spokesman Jeremy Carey declined to comment.
RBS has fired four traders and suspended at least three others for alleged rate manipulation, according to a person with knowledge of the probe. Barclays has disciplined 13 employees and dismissed five, Ricci, now head of corporate and investment banking, told British lawmakers on Nov. 28.
‘Completely Failed’
More than 25 people have left UBS after the Zurich-based lender’s internal probe, a person with knowledge of the investigation said last month.
Not until Barclays settled with regulators in June, five years after flaws in the rate-setting process emerged, did the U.K. government order an inquiry into Libor. It recommended stripping the BBA of its oversight role, handing it to the Bank of England and introducing criminal sanctions for traders seeking to rig the benchmark rate.
“Governance of Libor has completely failed,” FSA Managing Director Martin Wheatley, who led the review, said as he released the report. “This problem has been exacerbated by a lack of regulation and a comprehensive mechanism to punish those who manipulate the system.”
In the final chapter of his report, published in September, Wheatley said Libor wasn’t the only rate vulnerable to abuse. Two months later, the U.K.’s $480 billion gas market came under the spotlight for alleged manipulation after a journalist at the ICIS price agency reported deals he suspected were being done below “prevailing” levels. UBS and RBS suspended four traders in Singapore for rigging benchmarks used to set prices on foreign-exchange contracts.
Libor Lawsuits
“Libor is just the beginning,” said Rosa Abrantes-Metz, an economist with New York-based consulting firm Global Economics Group Inc., an associate professor at New York University’s Stern School of Business and co-author of “Libor Manipulation?” a paper published in August 2008. “Regulators are carrying out a general review of dozens of benchmarks around the world” and most have problems similar to Libor, she said.
The ubiquity of contracts pegged to Libor leaves banks vulnerable to lawsuits. Barclays was ordered by a British judge last month to release the names of all individuals involved in Libor-rigging at the bank after Guardian Care Homes Ltd., a Wolverhampton, England-based owner of about 30 homes for the elderly, sued the bank for 38 million pounds over interest-rate swaps that lost it money.
Alabama Mortgages
In Alabama, mortgage-holders have filed a class action in federal court alleging that 12 banks colluded to push Libor higher on the dates when repayments are set. The plaintiffs include Annie Bell Adams, a pensioner whose home was repossessed, and Dennis Fobes, a 59-year-old salesman of janitorial supplies whose house in Mobile is now worth less than his mortgage. He said he refinanced in 2006 with a $360,000 adjustable-rate mortgage linked to six-month dollar Libor.
“It’s just another example of how the banks have manipulated everything in their power,” Fobes said in a telephone interview. “I will fight them to the day I die to save my home.”
Savers also are suing. The city of Baltimore and Charles Schwab Corp. (SCHW), the largest independent brokerage by client assets, have filed suits claiming banks colluded to keep Libor artificially low, depriving them of fair returns. At least 30 such cases are pending in federal court in New York.
“Our hope is that the exposure of this illegal conduct results in systemic changes in Libor that prevent similar abuses in the future,” Sarah Bulgatz, a spokeswoman for Schwab, said in an e-mail.
Georgian Townhouse
In London, lawyers at Collyer Bristow LLP, a 252-year-old firm, are working on a plan that would force banks to reimburse customers for any payments they made under derivatives contracts pegged to Libor. Three of the five partners on the financial- litigation team are working full time on Libor-related cases.
Stephen Rosen, who runs the practice, said clients who entered into interest-rate swaps with banks are entitled to cancel those contracts because manipulation was so entrenched. Swaps are contracts that allow borrowers to exchange a variable interest cost for a fixed one, protecting them against fluctuations in interest rates.
“It’s possible on legal grounds to set aside the swap contract entirely, which could mean you can recover all the payments you’ve made under the swap,” Rosen, who wears thick- rimmed glasses and speaks in clipped, precise tones, said in an interview at his office in a Georgian townhouse in the legal district of Gray’s Inn. “The bank, when they entered into the swap, made an implied representation that Libor would not be unfairly manipulated.”
Rosen said his clients include a publicly traded real estate company, three nursing homes and at least 12 more firms that bought Libor-linked interest-rate swaps from banks. He declined to identify them by name, citing confidentiality rules.
“The client will argue, ‘Had you told me the truth -- that you were fraudulently manipulating this rate -- I would never have entered the contract with you,’” he said. “We are calling this the nuclear option.”
By Liam Vaughan & Gavin Finch - Dec 13, 2012 4:01 PM GMT
Simon Dawson/Bloomberg
The Royal Bank of Scotland Group Plc (RBS) company's headquarters in London.
Every morning, from his desk by the bathroom at the far end of Royal Bank of Scotland Group Plc’s trading floor overlooking London’s Liverpool Street station, Paul White punched a series of numbers into his computer.
White, who joined RBS in 1984, was one of the employees responsible for the firm’s submissions to the London interbank offered rate, or Libor, the global benchmark for more than $300 trillion of contracts, from mortgages and student loans to interest-rate swaps. Behind him sat Neil Danziger, a derivatives trader at the bank since 2002. On the morning of March 27, 2008, Tan Chi Min, Danziger’s boss in Tokyo, told him to make sure the next day’s submission in yen would increase.
“We need to bump it way up high, highest among all if possible,” Tan, known by colleagues as “Jimmy,” wrote in an instant message to Danziger, according to a transcript made public by a Singapore court and reviewed by Bloomberg before being sealed by a judge at RBS’s request.
The trader typically would have swiveled in his chair, tapped White on the shoulder and relayed the request, people who worked on the trading floor said. Instead, as White was away that day, Danziger input the rate himself.
The next morning RBS said it paid 0.97 percent to borrow in yen for three months, up from 0.94 percent the previous day. The Edinburgh-based bank was the only one of 16 surveyed to raise its rate. If it had lowered its submission in line with others, the cost of borrowing in yen would have fallen one-fifth of a basis point, or 0.002 percent, according to data compiled by Bloomberg. Even that small a move could mean a gain of $250,000 on a position of $50 billion.
Dirty Dicks
Events like those that took place on RBS’s trading floor, across the road from Bishopsgate police station and Dirty Dicks, a 267-year-old public house, are at the heart of the biggest and longest-running scandal in banking history.
UBS Said to Face Fines of More Than $1 Billion in Libor Probes
For years, traders at RBS, Barclays Plc (BARC), UBS AG (UBSN), Deutsche Bank AG (DBK), Rabobank Groep and other firms that stood to profit worked with employees responsible for setting the benchmark to rig the price of money, according to documents obtained by Bloomberg and interviews with two dozen current and former traders, lawyers and regulators. Those interviews reveal how the manipulation flourished for years, even after bank supervisors were made aware of the system’s flaws.
‘Financial Fraud’
The conspiracy wasn’t confined to low-level employees. Senior managers at RBS, Britain’s largest publicly owned lender, knew banks were systematically rigging Libor as early as August 2007, transcripts of phone conversations obtained by Bloomberg show. Some traders colluded with counterparts at other banks to boost profits from interest-rate futures by aligning their submissions. Members of the close-knit group knew each other from working at the same firms or going on trips organized by interdealer brokers such as ICAP Plc (IAP) to Chamonix, a French ski resort, or the Monaco Grand Prix.
“We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time,” said Adrian Blundell-Wignall, a special adviser to the secretary general of the Organization for Economic Cooperation and Development in Paris. “Libor is the basis for calculating practically every derivative known to man.”
Now, more than five years after alarms first sounded, regulators and prosecutors are closing in. Three people, including a former trader at UBS and Citigroup Inc. (C), were arrested in London this week in connection with the probe into rate manipulation, the first apprehensions in an investigation involving more than half a dozen agencies on three continents.
Barclays Fine
Barclays paid a record 290 million-pound ($468 million) fine in June to settle with regulators, and the London-based lender’s three top executives, including Chief Executive Officer Robert Diamond, departed after criticism by bank supervisors and politicians. Other firms, including RBS and Zurich-based UBS, are negotiating settlements, according to people with knowledge of the discussions. UBS may face a fine of more than $1 billion from U.S. and British regulators within days, a person with knowledge of the investigation said today. Spokesmen for Barclays, RBS and UBS declined to comment.
The industry faces regulatory penalties of at least $8.7 billion, according to Morgan Stanley. (MS) The European Union is leading a probe that could see banks fined as much as 10 percent of their annual revenue. Dozens of lawsuits have been filed in the U.S. and U.K. claiming losses on products pegged to Libor.
Light Touch
The scandal demonstrates the failure of London’s two-decade experiment with light-touch supervision, which helped make the British capital the biggest trading hub in the world. In his 10 years as Chancellor of the Exchequer, Gordon Brown championed this approach, hailing a “golden age” for the City of London in a June 2007 speech. Even after the FSA pledged to toughen its rules following the 2008 financial crisis, supervisors failed to act on warnings that the benchmark was being manipulated.
Regulators have known since at least August 2007 that banks were using artificially low Libor submissions to appear healthier than they were. That month, a Barclays employee in London e-mailed the Federal Reserve Bank of New York, questioning the numbers that other banks were inputting, according to transcripts published by the New York Fed.
Nine months later, Tim Bond, then head of asset allocation at Barclays’s investment bank, publicly described the Libor figures as “divorced from reality,” saying in a Bloomberg Television interview that firms were routinely misstating their borrowing costs to avoid the perception they were facing stress.
No Responsibility
The New York Fed and the Bank of England say they didn’t act because they had no responsibility for oversight of Libor. That fell to the British Bankers’ Association, the industry lobbying group that created the rate and largely ignored recommendations from central bankers after 2008 to change the way the benchmark is computed. Regulators also were preoccupied with the biggest financial crisis since the Great Depression, and forcing banks to be honest about their Libor submissions might have revealed they were paying penalty rates to borrow.
Libor is calculated daily through a survey of banks asking how much it costs them to borrow in different currencies for various durations. Because it’s based on estimates rather than actual trade data, the process relies on the honesty of participants. Instead, derivatives traders at banks around the world sought to influence their firms’ Libor submissions and managers sometimes condoned the practice, according to documents and transcripts of instant messages obtained by Bloomberg.
Some former regulators say they were surprised to learn about the scale of the cheating.
Greenspan ‘Wrong’
“Through all of my experience, what I never contemplated was that there were bankers who would purposely misrepresent facts to banking authorities,” Alan Greenspan, chairman of the U.S. Federal Reserve from 1987 to 2006, said in a phone interview. “You were honor-bound to report accurately, and it never entered my mind that, aside from a fringe element, it would be otherwise. I was wrong.”
Sheila Bair, a former acting chairman of the U.S. Commodity Futures Trading Commission and chairman of the Federal Deposit Insurance Corp. from 2006 to 2011, said the scope of the scandal points to the flaws of light-touch regulation.
“When a bank can benefit financially from doing the wrong thing, it generally will,” Bair said in an interview. “The extent of the Libor manipulation was eye-popping.”
Libor debuted in 1986, the year British Prime Minister Margaret Thatcher’s so-called “Big Bang” program of financial deregulation fueled a boom in London’s bond and syndicated-loan markets. It was intended to be a simple benchmark that borrowers and lenders could use to price loans.
Gaming Libor
In 1997, the Chicago Mercantile Exchange switched the rate used in pricing Eurodollar futures contracts to Libor, solidifying its position as the principal benchmark for the swaps market, which by June 2012 had a notional value of $639 trillion, according to the Bank for International Settlements.
That decision created a temptation for swaps traders to game Libor, particularly in the days before International Money Market or IMM dates, when three-month Eurodollar futures settle. The value of traders’ positions, often billions of dollars, was affected by where the dollar Libor rate was set on the third Wednesdays of March, June, September and December.
The manipulation of Libor was discussed openly at banks.
“We have an unbelievably large set on Monday,” one Barclays swaps trader in New York e-mailed the firm’s rate- setter in London on March 10, 2006. “We need a really low three-month fix, it could potentially cost a fortune.”
The rate-setter complied with the request, according to Britain’s Financial Services Authority, which published the e- mail following its investigation of the bank’s role.
Borrowing Costs
The 2007 credit crunch increased the opportunity to cheat. With banks hoarding cash and not lending to one other, there was little trading in money markets, making it impossible for rate- setters to assess borrowing costs accurately. Instead, traders said they resorted to seeking input from interdealer brokers, colleagues and acquaintances at other firms, many of whom stood to benefit from where the rate was set. They described it as legitimate information-sharing in the absence of trading.
On Aug. 20, 2007, days after BNP Paribas SA (BNP) halted withdrawals from three funds, forcing the European Central Bank to offer lenders unlimited cash and marking the start of the credit crisis, Paul Walker, RBS’s head of money-markets trading and the person responsible for U.S. dollar Libor submissions, discussed with Scott Nygaard, then Tokyo-based head of short- term markets for Asia, how banks were using Libor to benefit their trading positions.
‘Yeah, Yeah’
“People are setting to where it suits their book,” Walker said in a phone call with Nygaard, a transcript of which was obtained by Bloomberg. “Libor is what you say it is.”
“Yeah, yeah,” replied Nygaard, an American who joined RBS in 2006 after six years at Deutsche Bank in Japan.
Walker and Nygaard, now global head of treasury markets based in London and a member of the Bank of England’s money- markets liaison group, both declined to comment.
Each day, the BBA asks banks to estimate how much it would cost them to borrow in 10 currencies for periods ranging from overnight to one year. The top and bottom quartiles of quotes are excluded, and those left are averaged and made public before noon in London. Submissions from contributing banks also are published. The dollar Libor panel consists of 18 banks, while the one for sterling has 16, and 13 firms set the yen rate.
It didn’t take a conspiracy involving large numbers of traders at different firms to move the rate. By nudging their submissions, traders at a single bank could influence where Libor was fixed. Even inputting a rate too high to be included could push up the final figure by sending a previously excluded entry back into the pack. A move in Libor of less than 1 basis point, or one-hundredth of a percentage point, could be valuable for traders managing billions of dollars in swaps.
No Training
“If you have a system like Libor, where highly subjective quotes are built into the process, you have a lot of opportunity for manipulation,” said Andrew Verstein, a lecturer at Yale Law School in New Haven, Connecticut, and co-author of a paper on Libor rigging to be published in the Winter 2013 issue of the Yale Journal on Regulation. “You don’t need a cartel to make Libor manipulation work for you. It certainly wouldn’t hurt, but it didn’t have to happen.”
At UBS, Deutsche Bank, Barclays, Rabobank, RBS and JPMorgan Chase & Co. (JPM), rate-setters were given no training or guidelines for making submissions, according to former employees who asked not to be identified because investigations are continuing. At RBS and Frankfurt-based Deutsche Bank, derivatives traders on occasion made their firm’s submissions, they said. Spokesmen for all the banks declined to comment.
Heat Wave
As the credit crisis intensified in the fourth quarter of 2007, Libor was a closely scrutinized gauge of the health of financial firms. After years of relative stability, the benchmark became more volatile. The average spread between the highest and lowest submissions to the three-month dollar rate widened to about 8 basis points in the three months ended Oct. 30, 2007, from about 1 basis point in the previous three months, data compiled by Bloomberg show.
The volatility drew the attention of investors and regulators. As Japan endured its most intense heat wave in 100 years on August 20, 2007, a sales manager at RBS in Tokyo received a call from a trader at hedge fund Brevan Howard LLP in Hong Kong, according to two people with knowledge of the matter.
RBS’s rate-setter in London had increased the bank’s submission for three-month yen Libor by 9 basis points from the end of the previous week, helping to push the benchmark to its highest level since 1995.
Instant Messages
Brevan Howard wanted to know why the rate jumped, even after the Fed had announced unprecedented steps to boost liquidity at the end of the week, something that should have lowered the measure, the people said.
RBS employees in London and Tokyo discussed the hedge fund’s call in instant messages. Nygaard phoned Walker in London to say RBS should be “careful how we speak with them about what we, how the rate is set,” according to a transcript of an instant-message conversation obtained by Bloomberg.
On a conference call later that day that included Walker and Darin Spilman, an RBS sales manager, Danziger told the Brevan Howard trader how the bank calculated its submissions in the absence of any cash trading and gave his views on what he expected to happen to the Tokyo interbank offered rate, or Tibor. Danziger, Spilman, Walker, Nygaard and Tan declined to comment, as did Anthony Payne, a spokesman for Brevan Howard in London.
‘Unrealistically Low’
About a week later, on Aug. 28, 2007, Fabiola Ravazzolo, an economist on the financial-stability team at the New York Fed, received an e-mail from a member of Barclays’s money-markets desk in London, accusing the firm’s competitors of making artificially low Libor submissions, according to transcripts published by the regulator that didn’t identify the sender.
Barclays that day had submitted the highest rate to three- month dollar Libor, while the lowest was posted by London-based Lloyds Banking Group Plc (LLOY), suggesting Barclays was having more difficulty obtaining funding than Lloyds, a bank later bailed out by the U.K. government.
“Today’s U.S. dollar Libors have come out and they look too low to me,” the e-mail said. “Draw your own conclusions about why people are going for unrealistically low Libors.”
Lloyds, in an e-mailed statement, declined to comment on what it called “speculation by traders at other banks.”
It wasn’t until the following year, prompted by a March 2008 report by the Bank for International Settlements and an April article in the Wall Street Journal suggesting banks were lowballing their submissions, that the New York Fed and the Bank of England asked the BBA to review the rate-setting process.
Geithner Memo
In June 2008, New York Fed President Timothy F. Geithner sent a memo to Bank of England Governor Mervyn King and his deputy, Paul Tucker, putting forward a list of recommendations for fixing Libor, including increasing the number of contributing banks, basing the rate on an average of randomly selected submissions and cutting maturities in which little or no trading took place.
“These are pretty modest reforms, they probably wouldn’t have invalidated contracts and they might have reduced some of the abuses,” Yale’s Verstein said. “On the other hand, it would likely have caused Libor to go up, which could have affected a great many people.”
Aside from creating a committee to review questionable submissions and promising to increase the number of contributors to dollar Libor, the BBA chose not to implement Geithner’s suggestions. Angela Knight, then the group’s CEO, said in a December 2008 statement that Libor could be trusted as “a reliable benchmark.”
‘Wholly Inadequate’
Privately, regulators were skeptical. As the BBA was drafting its proposals, King wrote to colleagues including Tucker on May 31, 2008, describing the group’s response as “wholly inadequate,” according to documents released by the Bank of England in July. Rather than press the BBA to change the way Libor was set, the Bank of England, the FSA and the New York Fed demanded that any references to them be removed from the BBA review, the e-mails show.
A spokesman for the Bank of England said Britain’s central bank “had no supervisory responsibilities” for Libor at the time. The New York Fed also “lacked direct authority over Libor” and didn’t want to be seen endorsing a private association’s plan, according to Jack Gutt, a spokesman. The New York Fed continued to press for reform through 2008, he said.
‘Reliable Benchmark’
Liam Parker, an FSA spokesman, referred to earlier comments FSA Chairman Adair Turner made to British lawmakers in July that the regulator was in contact with the CFTC at a “very early stage” in the U.S. commission’s investigation. It’s in the nature of such probes that one regulator takes the lead and others assist and decide at a later date whether to get “directly and formally involved,” Turner said.
The BBA said in an e-mail that it’s working with the regulators “to ensure the provision of a reliable benchmark which has the confidence and support of all users.”
By failing to act, regulators allowed rate-rigging to continue over the next two years. At RBS, the abuse was most pronounced from 2008 until late 2010, according to people close to the bank’s internal probe. At Barclays, manipulation continued until the second half of 2009. Japan’s financial services agency banned Citigroup from trading derivatives linked to Libor and Tibor for two weeks in January in punishment for wrongdoing that started in December 2009.
‘Huge Oversight’
Barclays former chief operating officer, Jerry Del Missier, went further, saying that the Bank of England encouraged the lender to suppress Libor submissions. In October 2008, days before RBS and Lloyds sought bailouts, the central bank asked Barclays to lower its quotes because they were stoking concern about the bank’s stability, Del Missier told a panel of British lawmakers July 16. Tucker, the Bank of England deputy director, has said he never gave such instructions.
“It’s not adequate for the authorities to say, ‘We didn’t have responsibility,’” said Paul Myners, a Labour Party member in Parliament’s House of Lords and the U.K. government’s financial-services minister from 2008 to 2010. “It was a huge oversight by the regulators not to realize that Libor and other benchmarks were of such critical importance that they should fall within the regulatory ambit.”
In the end, it was a U.S. regulator without any banking oversight that brought Libor rigging to a halt. Vincent McGonagle, a top enforcement official at the Commodity Futures Trading Commission in Washington, initiated a probe into Libor after reading the April 2008 Wall Street Journal story.
‘So Flawed’
The CFTC sent letters to several banks that fall requesting information, according to a person with knowledge of the investigation. The commission decided it had the authority to act because Libor affects the price of commodities, including futures contracts that trade on the Chicago Mercantile Exchange.
A decade earlier, the CFTC had lost out in an attempt to regulate the market for over-the-counter derivatives, including those pegged to Libor, following the 1998 collapse of hedge fund Long-Term Capital Management LP. The bid was opposed by then-Fed Chairman Greenspan and Treasury Secretary Robert Rubin. In 2000, Congress passed the Commodity Futures Modernization Act, leaving the OTC markets unregulated.
“That’s reflective of the hands-off, light-touch, markets- can-regulate-themselves approach to regulation that has been shown to be so flawed,” Bair said.
‘Vigorously Pursue’
Banks opened their own investigations after the CFTC inquiries. Barclays initially looked into allegations it had lowballed dollar Libor. It appointed Rich Ricci, then co-head of its investment bank, to oversee the inquiry. As the team sifted through thousands of pages of e-mail correspondence and transcripts of instant messages and phone conversations, it uncovered evidence that traders were manipulating the rate both up and down for profit, according to two people with knowledge of the probe.
The CFTC came to the same conclusion in late 2009 or early 2010, according to the person with knowledge of the commission’s inquiry. It happened when Gary Gensler, who had been chairman for less than a year, stood in the foyer of his ninth-floor Washington office as Stephen Obie, acting head of enforcement at the time, played a Barclays tape of a conversation between traders and rate-setters, the person said.
“We had to vigorously pursue this,” Gensler said in a Dec. 9 interview. “Sometimes practice in a market gets confused and over the line, but nonetheless it may still be illegal.”
The Barclays internal probe retained two law firms working outside the bank’s Canary Wharf office and cost 100 million pounds, according to people briefed on the matter. Diamond, who was interviewed during the in-house inquiry, wasn’t made aware of the full extent of the findings until less than a week before the bank announced its settlement in June because of his status as a witness in the probe, the people said.
Traders’ Requests
The settlement revealed how widespread the manipulation was. The bank’s derivatives traders made 257 requests for U.S. dollar Libor, yen Libor and Euribor submissions between January 2005 and June 2009, according to the settlement. The requests for U.S. dollar Libor were granted about 70 percent of the time.
Former Barclays trader Philippe Moryoussef is under investigation by the CFTC, FSA and U.S. Department of Justice for colluding with counterparts at Deutsche Bank, Credit Agricole SA (ACA) and HSBC Holdings Plc (HSBA) to influence Euribor, according to a person with knowledge of the matter who asked not to be identified because the probes are continuing. The Deutsche Bank trader was Christian Bittar, head of money-markets derivatives trading, one of the people said.
‘Blatantly Dishonest’
Thomas Hayes, among those arrested in London on Dec. 11, also is being probed by Canada’s Competition Bureau for rate manipulation along with counterparts at five banks including HSBC, RBS and JPMorgan, according to a person briefed on the investigation. The 33-year-old trader worked with two of the others during his time at RBS in London between 2001 and 2003, two people with knowledge of the matter said.
The extent of the rate-rigging surprised Martin Taylor, Barclays’s CEO from 1994 to 1998.
“Pretty much anything you could do to increase the revenue of your organization appeared legitimate,” Taylor said in an interview. “Here was the market doing something blatantly dishonest. I never imagined that people in the financial markets were saints, but you expect some moral standards.”
Michael Golden, a Deutsche Bank spokesman, said that the conduct of a “limited number” of employees, acting on their own initiative, fell short of the bank’s standards, and that the firm is cooperating with regulators. Spokesmen for Barclays, HSBC and Credit Agricole declined to comment, as did Bittar. Hayes and Moryoussef couldn’t be located through directory and web searches or by contacting former employers.
Wrongful Dismissal
At RBS, managers condoned and sometimes encouraged rate- rigging by employees, according to Tan, who sued the bank for wrongful dismissal in Singapore in December 2011. Tan says executives including Nygaard and Kevin Liddy, global head of short-term interest-rate trading, were aware of the behavior.
Other RBS managers sought to manipulate the benchmark themselves. In an instant-message conversation on Dec. 3, 2007, Jezri Mohideen, then RBS’s head of yen products in Tokyo, instructed colleagues in the U.K. to lower the bank’s six-month Libor submission that day, according to a transcript of the discussion seen by Bloomberg.
“We want lower Libors,” Mohideen said in the chat. “Let the money markets guys know.”
“Sure, I’m setting,” said Will Hall, a trader in London who set the rate that day in the absence of the rate-setter.
“Great, set it nice and low,” Mohideen said.
Hall agreed to set the rate at 1.01 percent and followed through with the request, data compiled by Bloomberg show. No reason was given in the message as to why he wanted a lower bid.
Project Zen
RBS put Mohideen on leave Oct. 12, two weeks after Bloomberg reported the conversation, according to two people with knowledge of the move. White, Danziger and Tan were dismissed in 2011 following the bank’s internal probe into yen Libor known as Project Zen. Andy Hamilton, who traded derivatives tied to the Swiss franc, also was fired in 2011 for trying to influence Libor.
White is now the commercial manager for Welling United football club and writes match-day programs for the Wings, as the non-league soccer team in southeast London is known. On his LinkedIn profile, he describes himself as: “Former trader: looking for employment or a fresh challenge.” He declined to comment, as did Tan, Danziger, Hamilton and Liddy. Mohideen said in a statement issued by his lawyer that he never sought “to exert pressure on anyone to submit inaccurate rates.”
Chamonix Trip
The manipulation of Libor was a common practice in an unregulated market small enough for most participants to know one another personally, investigators found. Traders who worked 12-hour days without a lunch break were entertained by interdealer brokers soliciting business, according to three people familiar with the outings.
In March 2007, five months before the onset of the credit crisis, a dozen traders from firms including Deutsche Bank, JPMorgan and Lehman Brothers Holdings Inc. traveled to Chamonix, according to people with knowledge of the outing. The group, traders of yen-based derivatives, spent a day skiing before gathering over mulled wine at a restaurant. They flew back late on Sunday, in time for a 6 a.m. start the next day.
The trip was organized by London-based ICAP, the world’s biggest interdealer broker, which lines up buyers and sellers of securities and takes a percentage from every trade. Brokers such as ICAP and RP Martin Holdings Ltd., also in London, were sounding boards for those trying to set rates, especially after money markets dried up, traders interviewed by Bloomberg said.
Traders Dismissed
ICAP said in May that it had received requests from government agencies probing banks’ Libor submissions and is cooperating fully. The firm has suspended one employee and placed three others on paid leave pending the outcome of the investigation. Brigitte Trafford, an ICAP spokeswoman, declined to comment. Two RP Martin brokers were arrested in London on Dec. 11 as part of an inquiry into Libor-rigging. RP Martin spokesman Jeremy Carey declined to comment.
RBS has fired four traders and suspended at least three others for alleged rate manipulation, according to a person with knowledge of the probe. Barclays has disciplined 13 employees and dismissed five, Ricci, now head of corporate and investment banking, told British lawmakers on Nov. 28.
‘Completely Failed’
More than 25 people have left UBS after the Zurich-based lender’s internal probe, a person with knowledge of the investigation said last month.
Not until Barclays settled with regulators in June, five years after flaws in the rate-setting process emerged, did the U.K. government order an inquiry into Libor. It recommended stripping the BBA of its oversight role, handing it to the Bank of England and introducing criminal sanctions for traders seeking to rig the benchmark rate.
“Governance of Libor has completely failed,” FSA Managing Director Martin Wheatley, who led the review, said as he released the report. “This problem has been exacerbated by a lack of regulation and a comprehensive mechanism to punish those who manipulate the system.”
In the final chapter of his report, published in September, Wheatley said Libor wasn’t the only rate vulnerable to abuse. Two months later, the U.K.’s $480 billion gas market came under the spotlight for alleged manipulation after a journalist at the ICIS price agency reported deals he suspected were being done below “prevailing” levels. UBS and RBS suspended four traders in Singapore for rigging benchmarks used to set prices on foreign-exchange contracts.
Libor Lawsuits
“Libor is just the beginning,” said Rosa Abrantes-Metz, an economist with New York-based consulting firm Global Economics Group Inc., an associate professor at New York University’s Stern School of Business and co-author of “Libor Manipulation?” a paper published in August 2008. “Regulators are carrying out a general review of dozens of benchmarks around the world” and most have problems similar to Libor, she said.
The ubiquity of contracts pegged to Libor leaves banks vulnerable to lawsuits. Barclays was ordered by a British judge last month to release the names of all individuals involved in Libor-rigging at the bank after Guardian Care Homes Ltd., a Wolverhampton, England-based owner of about 30 homes for the elderly, sued the bank for 38 million pounds over interest-rate swaps that lost it money.
Alabama Mortgages
In Alabama, mortgage-holders have filed a class action in federal court alleging that 12 banks colluded to push Libor higher on the dates when repayments are set. The plaintiffs include Annie Bell Adams, a pensioner whose home was repossessed, and Dennis Fobes, a 59-year-old salesman of janitorial supplies whose house in Mobile is now worth less than his mortgage. He said he refinanced in 2006 with a $360,000 adjustable-rate mortgage linked to six-month dollar Libor.
“It’s just another example of how the banks have manipulated everything in their power,” Fobes said in a telephone interview. “I will fight them to the day I die to save my home.”
Savers also are suing. The city of Baltimore and Charles Schwab Corp. (SCHW), the largest independent brokerage by client assets, have filed suits claiming banks colluded to keep Libor artificially low, depriving them of fair returns. At least 30 such cases are pending in federal court in New York.
“Our hope is that the exposure of this illegal conduct results in systemic changes in Libor that prevent similar abuses in the future,” Sarah Bulgatz, a spokeswoman for Schwab, said in an e-mail.
Georgian Townhouse
In London, lawyers at Collyer Bristow LLP, a 252-year-old firm, are working on a plan that would force banks to reimburse customers for any payments they made under derivatives contracts pegged to Libor. Three of the five partners on the financial- litigation team are working full time on Libor-related cases.
Stephen Rosen, who runs the practice, said clients who entered into interest-rate swaps with banks are entitled to cancel those contracts because manipulation was so entrenched. Swaps are contracts that allow borrowers to exchange a variable interest cost for a fixed one, protecting them against fluctuations in interest rates.
“It’s possible on legal grounds to set aside the swap contract entirely, which could mean you can recover all the payments you’ve made under the swap,” Rosen, who wears thick- rimmed glasses and speaks in clipped, precise tones, said in an interview at his office in a Georgian townhouse in the legal district of Gray’s Inn. “The bank, when they entered into the swap, made an implied representation that Libor would not be unfairly manipulated.”
Rosen said his clients include a publicly traded real estate company, three nursing homes and at least 12 more firms that bought Libor-linked interest-rate swaps from banks. He declined to identify them by name, citing confidentiality rules.
“The client will argue, ‘Had you told me the truth -- that you were fraudulently manipulating this rate -- I would never have entered the contract with you,’” he said. “We are calling this the nuclear option.”
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Re: Bl***y Banks Again
Panda Wed 23 Jan - 7:34
Central bankers should be brought to heel by elected parliaments
Intellectual fashion is changing. Central bankers around the world no longer command the charisma of a high priesthood.
The Bank of Japan has agreed to raise its inflation target to 2pc, to be achieved at the “earliest possible time”.
By Ambrose Evans-Pritchard
8:21PM GMT 22 Jan 2013
65 Comments
Nor should they after stoking a global bubble and then tightening just as the money supply was collapsing in mid-2008.
The onus is falling on them to justify why monetary independence is self-evidently a good thing, and why central bankers should operate beyond democratic control.
The humbling of the Bank of Japan (BoJ) this week is just the start, as Bundesbank chief Jens Weidmann warned. “It is already possible to observe alarming infringements, for example in Hungary or in Japan, where the new government is massively involving itself in the affairs of the central bank, is emphatically demanding an even more aggressive monetary policy and is threatening an end to central bank autonomy,” he said.
One could say that “alarming infringements” are in the eye of the beholder. The European Central Bank that he serves is itself a political operator of unbounded power.
Professor Richard Werner, a monetary expert at Southampton University, says the men of Maastricht misread German history very badly when they created a central bank that answers to nobody. “They thought they were modelling the ECB on the Bundesbank, but they weren’t. They have instead replicated the Reichsbank, which was not accountable to any democratic institution, and led to disaster,” he said.
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No political force in Germany was able to halt Reichsbank deflation in the early 1930s until Hitler took power, tore up the rule book, and appointed Hjalmar Schacht with instructions to reflate, which he did with gusto and success.
Prof Werner said the Bundesbank was deliberately brought under the control of the German parliament when created after the Second World War to avoid repeating the mistakes of the Weimar era. “Europe has unlearned all the lessons of the Bundesbank,” he added.
The ECB’s actions have certainly been remarkable. It sent secret letters to the leaders of Italy and Spain in mid-2011 with a list of sweeping demands, covering pensions, labour reform, and sensitive political issues over which it has no constitutional authority.
When Italy failed to comply with the terms, it switched off bond purchases, let yields spiral upwards, and forced Silvio Berlusconi out of office. That may be a good or bad outcome – depending on your point of view – but it is not the action of a central bank. It is the action of a political authority that has entirely slipped the leash of democratic control.
The only real constraint on the ECB is the greater political power of the German Chancellory. Each stage of escalation in ECB’s emergency policies – culminating in Mario Draghi’s August pledge to buy “unlimited” amounts of Italian and Spanish bonds, once the political trigger is pulled – first required a green light from Angela Merkel.
Princeton professor Gauti Eggertsson has long argued that independent central banks have a “deflation bias” by their nature. This was fine during the quarter century after the Great Inflation of the 1970s, but as the inflation rate fell ever lower with each business cycle it eventually became dangerous, for there lies the dreaded “liquidity trap”.
A new paper by Paul McCulley and Zoltan Poszar argues that the taste for independent central banks goes “hand-in-hand with secular private debt cycles”. It becomes faddish during credit upswings such as the era of “monetary supremacy” from 1978 to 2008. The appeal wears off as the “deleveraging cycle” gathers force and the economy slides into slump. The US Employment Act of 1946 was the low point for the Fed. The bank was entirely harnessed to US Treasury purposes until its “emancipation” in 1951.
The implication is that politicians may have to take charge of central banks and force them to monetise debt at key moments to break the vicious circle. Indeed, the banks may have to be crushed into submission in extremis as a national priority if they drag their feet.
That is more or less what has just happened to the BoJ, the poster child of “deflationary bias”. The BoJ has agreed to raise its inflation target to 2pc, to be achieved at the “earliest possible time”, and will boost the money supply with “open-ended” bond purchases. It yielded only after premier Shinzo Abe won a landslide victory on an easy money ticket, and threatened to change the bank’s statute.
The BoJ continues to mount a fighting retreat. It will not add fresh stimulus this year beyond the $170bn (£107bn) already in the pipeline. But Mr Abe will get his way as he appoints “soulmates” to replace governor Masaaki Shirakawa and two key rate-setters over the next three months.
“Throughout the election I called for aggressive monetary easing. From now on, each party will be held responsible,” Mr Abe said yesterday. Deputy governor Toshiro Muto is already talking his language – saying nothing is taboo.
The BoJ offers a cautionary tale for the West. It has been largely passive for 20 years, dabbling on the margins, buying bonds on short maturities from banks in a way that does little to revive broad money supply. “All they did was to expand reserves, but that is never going to make any difference. They created a straw man to then argue that quantitative easing does not work,” said Prof Werner, the man who coined the term QE in the early 1990s and later wrote Princes of the Yen.
The result was to let budget deficits take the strain instead. One fiscal blitz after another over the past two decades has pushed public debt to 237pc of GDP. State financing needs will be 60pc of GDP this year. This is a cul-de-sac.
The greatest indictment of modern central banks is that they chose to target the consumer price level, one variable among many, and a bad one to boot. They took their eye off credit growth and asset prices.
Now some – notably the ECB – are making the opposite mistake. Rising CPI inflation blinds them to credit contraction and surging jobless levels.
They might fare better to target nominal GDP growth of 4pc to 5pc and forget about the short-term ups and downs of inflation. Former rate-setter Adam Posen told Parliament on Tuesday that nominal GDP targeting would be a “serious mistake.”
That clinches the matter. Let’s do it.
Intellectual fashion is changing. Central bankers around the world no longer command the charisma of a high priesthood.
The Bank of Japan has agreed to raise its inflation target to 2pc, to be achieved at the “earliest possible time”.
By Ambrose Evans-Pritchard
8:21PM GMT 22 Jan 2013
65 Comments Nor should they after stoking a global bubble and then tightening just as the money supply was collapsing in mid-2008.
The onus is falling on them to justify why monetary independence is self-evidently a good thing, and why central bankers should operate beyond democratic control.
The humbling of the Bank of Japan (BoJ) this week is just the start, as Bundesbank chief Jens Weidmann warned. “It is already possible to observe alarming infringements, for example in Hungary or in Japan, where the new government is massively involving itself in the affairs of the central bank, is emphatically demanding an even more aggressive monetary policy and is threatening an end to central bank autonomy,” he said.
One could say that “alarming infringements” are in the eye of the beholder. The European Central Bank that he serves is itself a political operator of unbounded power.
Professor Richard Werner, a monetary expert at Southampton University, says the men of Maastricht misread German history very badly when they created a central bank that answers to nobody. “They thought they were modelling the ECB on the Bundesbank, but they weren’t. They have instead replicated the Reichsbank, which was not accountable to any democratic institution, and led to disaster,” he said.
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No political force in Germany was able to halt Reichsbank deflation in the early 1930s until Hitler took power, tore up the rule book, and appointed Hjalmar Schacht with instructions to reflate, which he did with gusto and success.
Prof Werner said the Bundesbank was deliberately brought under the control of the German parliament when created after the Second World War to avoid repeating the mistakes of the Weimar era. “Europe has unlearned all the lessons of the Bundesbank,” he added.
The ECB’s actions have certainly been remarkable. It sent secret letters to the leaders of Italy and Spain in mid-2011 with a list of sweeping demands, covering pensions, labour reform, and sensitive political issues over which it has no constitutional authority.
When Italy failed to comply with the terms, it switched off bond purchases, let yields spiral upwards, and forced Silvio Berlusconi out of office. That may be a good or bad outcome – depending on your point of view – but it is not the action of a central bank. It is the action of a political authority that has entirely slipped the leash of democratic control.
The only real constraint on the ECB is the greater political power of the German Chancellory. Each stage of escalation in ECB’s emergency policies – culminating in Mario Draghi’s August pledge to buy “unlimited” amounts of Italian and Spanish bonds, once the political trigger is pulled – first required a green light from Angela Merkel.
Princeton professor Gauti Eggertsson has long argued that independent central banks have a “deflation bias” by their nature. This was fine during the quarter century after the Great Inflation of the 1970s, but as the inflation rate fell ever lower with each business cycle it eventually became dangerous, for there lies the dreaded “liquidity trap”.
A new paper by Paul McCulley and Zoltan Poszar argues that the taste for independent central banks goes “hand-in-hand with secular private debt cycles”. It becomes faddish during credit upswings such as the era of “monetary supremacy” from 1978 to 2008. The appeal wears off as the “deleveraging cycle” gathers force and the economy slides into slump. The US Employment Act of 1946 was the low point for the Fed. The bank was entirely harnessed to US Treasury purposes until its “emancipation” in 1951.
The implication is that politicians may have to take charge of central banks and force them to monetise debt at key moments to break the vicious circle. Indeed, the banks may have to be crushed into submission in extremis as a national priority if they drag their feet.
That is more or less what has just happened to the BoJ, the poster child of “deflationary bias”. The BoJ has agreed to raise its inflation target to 2pc, to be achieved at the “earliest possible time”, and will boost the money supply with “open-ended” bond purchases. It yielded only after premier Shinzo Abe won a landslide victory on an easy money ticket, and threatened to change the bank’s statute.
The BoJ continues to mount a fighting retreat. It will not add fresh stimulus this year beyond the $170bn (£107bn) already in the pipeline. But Mr Abe will get his way as he appoints “soulmates” to replace governor Masaaki Shirakawa and two key rate-setters over the next three months.
“Throughout the election I called for aggressive monetary easing. From now on, each party will be held responsible,” Mr Abe said yesterday. Deputy governor Toshiro Muto is already talking his language – saying nothing is taboo.
The BoJ offers a cautionary tale for the West. It has been largely passive for 20 years, dabbling on the margins, buying bonds on short maturities from banks in a way that does little to revive broad money supply. “All they did was to expand reserves, but that is never going to make any difference. They created a straw man to then argue that quantitative easing does not work,” said Prof Werner, the man who coined the term QE in the early 1990s and later wrote Princes of the Yen.
The result was to let budget deficits take the strain instead. One fiscal blitz after another over the past two decades has pushed public debt to 237pc of GDP. State financing needs will be 60pc of GDP this year. This is a cul-de-sac.
The greatest indictment of modern central banks is that they chose to target the consumer price level, one variable among many, and a bad one to boot. They took their eye off credit growth and asset prices.
Now some – notably the ECB – are making the opposite mistake. Rising CPI inflation blinds them to credit contraction and surging jobless levels.
They might fare better to target nominal GDP growth of 4pc to 5pc and forget about the short-term ups and downs of inflation. Former rate-setter Adam Posen told Parliament on Tuesday that nominal GDP targeting would be a “serious mistake.”
That clinches the matter. Let’s do it.
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Deutsche Bank said to sell CDOs to help meet Capital Goal.
Panda Thu 24 Jan - 20:33
Deutsche Bank Said to Sell CDOs to Help Meet Capital Goal
By Nicholas Comfort & John Glover - Jan 24, 2013 5:03 PM GMT
Deutsche Bank AG (DBK), Germany’s biggest lender, is said to have issued collateralized debt obligations, using a structure common before the credit crunch to shed its riskier assets and boost its capital ratio.
Institutional investors recently bought the products, which packaged asset-backed securities already on the bank’s balance sheet, said a person with knowledge of the transaction who requested anonymity because the matter is private. A Deutsche Bank official declined to comment.
The CDOs, representing $8.7 billion of risk, were sold in two tranches in dollars and euros, Frankfurter Allgemeine Zeitung reported earlier, citing people it didn’t identify. Buyers will receive a payment of 8 percent to 14.6 percent depending on how much risk they take on, the newspaper said.
“Until now, banks have had a hard time laying-off assets they don’t want to keep,” said David Watts, a credit strategist at CreditSights Inc. in London. “The traditional way of banks getting rid of them is to securitize them. These things sound as if they have tasty yields, but there tends to be a good reason for that.”
Slicing Risk
CDOs pool fixed-income securities and slice them into segments of varying risk and return. They proved popular before 2008 among yield-hungry investors until demand shrivelled as the real estate crash and downfall of Bear Stearns and Lehman Brothers Holdings Inc. pushed money managers into safer assets such as U.S. Treasuries.
Deutsche Bank’s deal is another example of the return of structures killed off by the worst financial crisis since the Great Depression.
London-based asset manager Cairn Capital Ltd. is raising a new, 300.5 million-euro ($402 million) collateralized loan obligation, the first European deal since June 2011, three people with knowledge of the matter said.
In the U.S., firms including Redwood Trust Inc. (RWT) have started selling CDOs backed by commercial real estate debt for the first time since the crunch, with Royal Bank of Scotland Group Plc predicting issuance will climb to as much as $10 billion in 2013, 10 times last year’s figure.
Deutsche Bank established its non-core operations unit last year to wind down 125 billion euros of risk-weighted assets it deems not central to its business. The Frankfurt-based lender plans to reduce that volume, which includes assets ranging from securitized positions to a Las Vegas casino, to 90 billion euros by the end of March.
The bank has said it would boost its core Tier 1 capital ratio, a measure of financial strength, to 7.2 percent as of Jan. 1 when factoring in stricter rules for reserves. Deutsche Bank is scheduled to update investors on the plan on Jan. 31.
By Nicholas Comfort & John Glover - Jan 24, 2013 5:03 PM GMT
Deutsche Bank AG (DBK), Germany’s biggest lender, is said to have issued collateralized debt obligations, using a structure common before the credit crunch to shed its riskier assets and boost its capital ratio.
Institutional investors recently bought the products, which packaged asset-backed securities already on the bank’s balance sheet, said a person with knowledge of the transaction who requested anonymity because the matter is private. A Deutsche Bank official declined to comment.
The CDOs, representing $8.7 billion of risk, were sold in two tranches in dollars and euros, Frankfurter Allgemeine Zeitung reported earlier, citing people it didn’t identify. Buyers will receive a payment of 8 percent to 14.6 percent depending on how much risk they take on, the newspaper said.
“Until now, banks have had a hard time laying-off assets they don’t want to keep,” said David Watts, a credit strategist at CreditSights Inc. in London. “The traditional way of banks getting rid of them is to securitize them. These things sound as if they have tasty yields, but there tends to be a good reason for that.”
Slicing Risk
CDOs pool fixed-income securities and slice them into segments of varying risk and return. They proved popular before 2008 among yield-hungry investors until demand shrivelled as the real estate crash and downfall of Bear Stearns and Lehman Brothers Holdings Inc. pushed money managers into safer assets such as U.S. Treasuries.
Deutsche Bank’s deal is another example of the return of structures killed off by the worst financial crisis since the Great Depression.
London-based asset manager Cairn Capital Ltd. is raising a new, 300.5 million-euro ($402 million) collateralized loan obligation, the first European deal since June 2011, three people with knowledge of the matter said.
In the U.S., firms including Redwood Trust Inc. (RWT) have started selling CDOs backed by commercial real estate debt for the first time since the crunch, with Royal Bank of Scotland Group Plc predicting issuance will climb to as much as $10 billion in 2013, 10 times last year’s figure.
Deutsche Bank established its non-core operations unit last year to wind down 125 billion euros of risk-weighted assets it deems not central to its business. The Frankfurt-based lender plans to reduce that volume, which includes assets ranging from securitized positions to a Las Vegas casino, to 90 billion euros by the end of March.
The bank has said it would boost its core Tier 1 capital ratio, a measure of financial strength, to 7.2 percent as of Jan. 1 when factoring in stricter rules for reserves. Deutsche Bank is scheduled to update investors on the plan on Jan. 31.
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Re: Bl***y Banks Again
Panda Thu 24 Jan - 20:39
The Banks have to raise Capital to pay for the LIBOR fines and retain Capital, Barclays is shedding over 6,000 jobs as are other Banks. This leaves less money to lend to small Businesses , the housing market is stagnant anyway with only the very expensive properties being sold to wealthy Foreigners.
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Re: Bl***y Banks Again
Panda Sat 26 Jan - 10:27
Trader loses £30m bonus over 'rigging’ at Deutsche
A Deutsche Bank trader has lost more than £30m in bonuses after being fired for allegedly trying to manipulate interest rates.
Deutsche Bank is conducting an investigation into its workers’ involvement in rigging benchmark interest rates. Photo: Reuters
By James Hurley
8:00PM GMT 25 Jan 2013
Christian Bittar, one of the bank’s best-paid traders, has had the scheduled payout “clawed back” by his former employer.
Deutsche Bank dismissed Mr Bittar in 2011 for allegedly colluding with a Barclays trader to fix benchmark interest rates in his favour in order to boost the value of his trades.
The lender said the $53m (£34m) bonuses it has withheld were “unvested compensation”, meaning that Mr Bittar earned them in the years before 2011 but they had yet to pay out.
Deutsche Bank is conducting an investigation into its workers’ involvement in rigging benchmark interest rates. Mr Bittar’s alleged attempts to manipulate Euribor, the eurozone’s version of Libor, and similar alleged efforts by derivatives trader Guillaume Adolph over yen-dominated Libor are the focus of the probe.
A spokesman for Deutsche Bank said: “Upon discovering that a limited number of employees acted inappropriately, we have sanctioned or dismissed employees, clawed back the unvested compensation of employees, and will continue to do so as we complete our investigation.”
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He added that the lender had found “no link between the inappropriate conduct of a limited number of employees and the profits generated by these trades”.
The bank has previously said that its review indicates that no “current or former member of the management board had any inappropriate involvement in the interbank offered rates matters under review”.
Mr Adolph was dismissed by Deutsche Bank in 2011, reportedly for inappropriate communications with UBS AG trader Thomas Hayes. Mr Hayes has since been charged by US prosecutors over the manipulation of interest rates.
Mr Bittar, who now works for hedge fund BlueCrest Capital Management, has not been charged with any crime.
Since most banks had a three-year deferred bonus policy when Mr Bittar was working at Deutsche Bank, the clawed back bonuses may relate to work he did as long ago as 2008. Under a standard three-year deferral programme, two thirds of deferred 2008 bonuses would have already vested, suggesting his original bonuses may have been considerably larger. Deutsche did not comment on the level of Mr Bittar’s bonuses.
More than a dozen banks around the world are under investigation for manipulating global interest rate
===========================
£30 million Bonus???? That is obscene and the reason these Traders had no scruples, nor did their Bosses who must have known what was going on.
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Re: Bl***y Banks Again
Panda Tue 29 Jan - 2:54
UK seeing 10,000 complaints on mis-sold insurance per week
January 29, 2013 2:00 AM GMT
Britain's financial ombudsman service is receiving up to 10,000 new complaints about mis-sold loan insurance each week, pointing to a further rise in the compensation bill for banks.
Banks have already set aside 12 billion pounds to compensate customers wrongly sold policies meant to protect borrowers who lost jobs or became ill, and industry sources have told Reuters they expect the number to double.
The ombudsman service, which steps in when banks and their customers cannot reach an agreement, said it received more complaints between October and December alone than it had in any 12 month period between 2000 and 2010.
The latest data show an acceleration from the 5,000 complaints the service was receiving each week about mis-sold payment protection insurance (PPI) between April and September last year. The ombudsman said earlier in January it was taking on 1,000 new staff to cope with the increase.
If the current rate of complaints continues, the ombudsman said it will have received over 350,000 PPI complaints in the year ending March 2013, over double its original forecast of 165,000. It is currently upholding 62 percent of complaints in the customers favour, compared with 7 out of 10 previously.
PPI is the most complained about financial product ever in Britain, with the ombudsman receiving its 500,000 case last October. The second highest is mortgage endowments, about which 350,000 complaints have reached the ombudsman.
Britain's banks recently asked the FSA to consider setting a deadline for customers to claim compensation for mis-sold loan insurance amid fears about the uncertainty that the rising bill is creating for investors.
The British Bankers Association, a lobby group, approached the FSA about setting a deadline of April 2014 for customers to make claims. The FSA is currently considering the idea.
(Reporting by Matt Scuffham; Editing by Mark Potter
January 29, 2013 2:00 AM GMT
Britain's financial ombudsman service is receiving up to 10,000 new complaints about mis-sold loan insurance each week, pointing to a further rise in the compensation bill for banks.
Banks have already set aside 12 billion pounds to compensate customers wrongly sold policies meant to protect borrowers who lost jobs or became ill, and industry sources have told Reuters they expect the number to double.
The ombudsman service, which steps in when banks and their customers cannot reach an agreement, said it received more complaints between October and December alone than it had in any 12 month period between 2000 and 2010.
The latest data show an acceleration from the 5,000 complaints the service was receiving each week about mis-sold payment protection insurance (PPI) between April and September last year. The ombudsman said earlier in January it was taking on 1,000 new staff to cope with the increase.
If the current rate of complaints continues, the ombudsman said it will have received over 350,000 PPI complaints in the year ending March 2013, over double its original forecast of 165,000. It is currently upholding 62 percent of complaints in the customers favour, compared with 7 out of 10 previously.
PPI is the most complained about financial product ever in Britain, with the ombudsman receiving its 500,000 case last October. The second highest is mortgage endowments, about which 350,000 complaints have reached the ombudsman.
Britain's banks recently asked the FSA to consider setting a deadline for customers to claim compensation for mis-sold loan insurance amid fears about the uncertainty that the rising bill is creating for investors.
The British Bankers Association, a lobby group, approached the FSA about setting a deadline of April 2014 for customers to make claims. The FSA is currently considering the idea.
(Reporting by Matt Scuffham; Editing by Mark Potter
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Re: Bl***y Banks Again
Panda Tue 29 Jan - 16:12
RBS Drops as U.S. Authorities Said to Ask for Libor Guilty Plea
By Gavin Finch & Phil Mattingly - Jan 29, 2013 3:28 PM GMT
Royal Bank of Scotland Group Plcfell the most in four months as U.S. authorities push for criminal charges in the probe into allegations that Britain’s biggest publicly owned lender tried to rig interest rates.
The U.S. Justice Department has extended talks to press the Edinburgh-based bank for a guilty plea in any settlement, said two people familiar with the negotiations. RBS may pay about 500 million pounds ($786 million) to U.S. and U.K. authorities to settle the claims as soon as next week, another two people with knowledge of the negotiations said.
Enlarge image
RBS Said to Cut Bonuses to $393 Million as Libor Fine Looms
Simon Dawson/Bloomberg
RBS is poised to set aside about 250 million pounds for bonuses at its investment bank, compared with 390 million pounds for 2011, said a person with knowledge of the plan.
RBS is poised to set aside about 250 million pounds for bonuses at its investment bank, compared with 390 million pounds for 2011, said a person with knowledge of the plan. Photographer: Simon Dawson/Bloomberg
“This opens up a huge can of worms for RBS,” said Simon Maughan, a financial services industry strategist at Olivetree Securities Ltd. in London. If RBS admits criminal liability,“you’re going to get all sorts of people building up class action lawsuits against them. That could prove very costly.”
The shares fell 6.1 percent to 345 pence as of 3:14 p.m. in London, their steepest intraday drop since Sept. 26. Credit-default swaps protecting the bank’s debt for five years climbed eight basis points to 171, the highest since Dec. 3, according to data compiled by Bloomberg. An increase signals deteriorating perceptions of credit quality.
The fine would be the second-largest levied by regulators in their investigation into allegations traders at the world’s biggest lenders manipulated submissions used to set the London interbank offered rate. UBS AG, Switzerland’s biggest lender, paid a $1.5 billion fine in December and its Japanese unit pleaded guilty to one count of wire fraud in the U.S. in its December settlement. Barclays Plc (BARC) was fined 290 million pounds in June and accepted no criminal liability.
Litigation Vulnerability
The RBS talks, which were close to completion earlier this month, have been prolonged as the Justice Department, bolstered by the guilty plea it secured from UBS’s Japanese unit, pressed RBS to plead guilty to the criminal charges as well, the people said. The Scottish bank has so far resisted on concern it could increase its vulnerability to litigation and lead clients to curtail business, according to the Wall Street Journal, which reported the talks earlier.
“Discussions with various authorities in relation to Libor-setting are ongoing,” Michael Strachan, a spokesman for RBS, said. “We continue to cooperate fully with their investigations.” He declined to comment further on the talks with the Justice Department. Rebekah Carmichael, spokeswoman for the Justice Department, declined to comment on the negotiations.
RBS may reduce the bonus pool at its investment bank by more than a third following the allegations of wrongdoing, a person with knowledge of the plan said today.
Bonuses Cut
The lender is poised to set aside about 250 million pounds for bonuses at the division, compared with 390 million pounds for 2011, said the person, who asked not to be identified because a final decision is yet to be taken. RBS plans to recoup between 100 million pounds and 150 million pounds from the bonus pool to offset the fine, people familiar with the matter said last month. The Financial Times reported the cut earlier today.
RBS will also claw back bonuses from those involved in the alleged manipulation of Libor as well as their superiors, up to and including the head of investment bank, John Hourican, the people said. He is expected to resign because he had responsibility for the parts of the company where the alleged wrongdoing occurred, even though he didn’t have direct knowledge of the behavior, the people said.
Libor is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded
========================
Gordpn Brown made the biggest mistake by bailing out RBS, the cost is never ending. !!!!!! I remember when Coutts, a prestigious Private bank closed down because of Nick Leesons activities people thought there would be a knock=on effect but there wasn't. Get what you can by selling NOW would be my advice , if the US makes a criminal case out of this the Investors would sell off anyway. The US is making a fortune in Fines from these Banks !!!!
By Gavin Finch & Phil Mattingly - Jan 29, 2013 3:28 PM GMT
Royal Bank of Scotland Group Plcfell the most in four months as U.S. authorities push for criminal charges in the probe into allegations that Britain’s biggest publicly owned lender tried to rig interest rates.
The U.S. Justice Department has extended talks to press the Edinburgh-based bank for a guilty plea in any settlement, said two people familiar with the negotiations. RBS may pay about 500 million pounds ($786 million) to U.S. and U.K. authorities to settle the claims as soon as next week, another two people with knowledge of the negotiations said.
Enlarge image
RBS Said to Cut Bonuses to $393 Million as Libor Fine Looms
Simon Dawson/Bloomberg
RBS is poised to set aside about 250 million pounds for bonuses at its investment bank, compared with 390 million pounds for 2011, said a person with knowledge of the plan.
RBS is poised to set aside about 250 million pounds for bonuses at its investment bank, compared with 390 million pounds for 2011, said a person with knowledge of the plan. Photographer: Simon Dawson/Bloomberg
“This opens up a huge can of worms for RBS,” said Simon Maughan, a financial services industry strategist at Olivetree Securities Ltd. in London. If RBS admits criminal liability,“you’re going to get all sorts of people building up class action lawsuits against them. That could prove very costly.”
The shares fell 6.1 percent to 345 pence as of 3:14 p.m. in London, their steepest intraday drop since Sept. 26. Credit-default swaps protecting the bank’s debt for five years climbed eight basis points to 171, the highest since Dec. 3, according to data compiled by Bloomberg. An increase signals deteriorating perceptions of credit quality.
The fine would be the second-largest levied by regulators in their investigation into allegations traders at the world’s biggest lenders manipulated submissions used to set the London interbank offered rate. UBS AG, Switzerland’s biggest lender, paid a $1.5 billion fine in December and its Japanese unit pleaded guilty to one count of wire fraud in the U.S. in its December settlement. Barclays Plc (BARC) was fined 290 million pounds in June and accepted no criminal liability.
Litigation Vulnerability
The RBS talks, which were close to completion earlier this month, have been prolonged as the Justice Department, bolstered by the guilty plea it secured from UBS’s Japanese unit, pressed RBS to plead guilty to the criminal charges as well, the people said. The Scottish bank has so far resisted on concern it could increase its vulnerability to litigation and lead clients to curtail business, according to the Wall Street Journal, which reported the talks earlier.
“Discussions with various authorities in relation to Libor-setting are ongoing,” Michael Strachan, a spokesman for RBS, said. “We continue to cooperate fully with their investigations.” He declined to comment further on the talks with the Justice Department. Rebekah Carmichael, spokeswoman for the Justice Department, declined to comment on the negotiations.
RBS may reduce the bonus pool at its investment bank by more than a third following the allegations of wrongdoing, a person with knowledge of the plan said today.
Bonuses Cut
The lender is poised to set aside about 250 million pounds for bonuses at the division, compared with 390 million pounds for 2011, said the person, who asked not to be identified because a final decision is yet to be taken. RBS plans to recoup between 100 million pounds and 150 million pounds from the bonus pool to offset the fine, people familiar with the matter said last month. The Financial Times reported the cut earlier today.
RBS will also claw back bonuses from those involved in the alleged manipulation of Libor as well as their superiors, up to and including the head of investment bank, John Hourican, the people said. He is expected to resign because he had responsibility for the parts of the company where the alleged wrongdoing occurred, even though he didn’t have direct knowledge of the behavior, the people said.
Libor is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded
========================
Gordpn Brown made the biggest mistake by bailing out RBS, the cost is never ending. !!!!!! I remember when Coutts, a prestigious Private bank closed down because of Nick Leesons activities people thought there would be a knock=on effect but there wasn't. Get what you can by selling NOW would be my advice , if the US makes a criminal case out of this the Investors would sell off anyway. The US is making a fortune in Fines from these Banks !!!!
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Re: Bl***y Banks Again
Panda Thu 31 Jan - 8:27
The latest scandal is British Banks mis-selling IPS.....Interest payment insurance basically. For those of you like me who does not really understand all these Banking facilities IPS offered Insurance to small Businesses which covered their Loans if interest rates increased. However, if interest rates went down the Customer was still paying Insurance. So far,the Banks involved are HSBC, RBS, Lloyds and Barclays...... Santander possibly.
It is expected that many Customers will sue and the Banks have agreed to pay, and is yet another example of the Banks breaching FSA rules.
=================================
You have to blame Gordon Brown for separating the FSA from the Bank of England and the FSA for incompetence for not monitoring the Banks properly.
It is expected that many Customers will sue and the Banks have agreed to pay, and is yet another example of the Banks breaching FSA rules.
=================================
You have to blame Gordon Brown for separating the FSA from the Bank of England and the FSA for incompetence for not monitoring the Banks properly.
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Re: Bl***y Banks Again
Panda Thu 31 Jan - 8:39
Banks mis-sold more than 90pc of rate swaps, says FSA
The FSA has accused Britain's largest banks of selling small businesses "absurdly complex products" and said that lenders will have to compensate thousands of customers.
Martin Wheatley, chief executive designate of the Financial Conduct Authority, said banks had sold small businesses 'absurdly complex products' Photo: WILL WINTERCROSS
By Harry Wilson, Banking Correspondent
8:00AM GMT 31 Jan 2013
7 Comments
More than 90pc of the complex interest rate derivatives sold by banks to small businesses could have been mis-sold, according to the findings of a review by the Financial Services Authority.
The FSA said that its analysis of 173 sales of interest rate hedging products to SMEs by Britain’s four largest banks found that 90pc “did not comply with one or more of our regulatory requirements”.
Martin Wheatley, chief executive designate of the Financial Conduct Authority, accused lenders of selling businesses “absurdly complex products” and said many customers could now expect compensation from their banks.
“This marks significant progress in our review of these products. We believe that our work will ensure a fair and reasonable outcome for small and unsophisticated businesses,” said Mr Wheatley.
Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland have been given the go-ahead to launch a redress scheme for mis-selling victims, with seven smaller lenders to begin compensating customers from February 12.
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Banks have been given six months to complete their reviews of mis-selling, though the regulator said that lenders with large numbers of customers could take up to 12 months.
In its report on swap mis-selling the FSA said a “significant proportion” of businesses sold the products could expect some form of compensation. More than 40,000 swap products were sold to SMEs over the last decade, according to the regulator's latest estimate of the scale of the scandal.
Lenders have already set aside more than £700m against potential swap mis-selling claims, with Barclays making the largest provision so far of £450m.
However, with the FSA’s findings these provisions are likely to be increased, with the total bill expected to reach at least £1.5bn, though many derivatives experts believe the final cost could easily exceed £10bn.
The launch of the FSA's review followed an investigation by The Sunday Telegraph and The Daily Telegraph that uncovered evidence of serious mis-selling by the largest banks.
The FSA has accused Britain's largest banks of selling small businesses "absurdly complex products" and said that lenders will have to compensate thousands of customers.
Martin Wheatley, chief executive designate of the Financial Conduct Authority, said banks had sold small businesses 'absurdly complex products' Photo: WILL WINTERCROSS
By Harry Wilson, Banking Correspondent
8:00AM GMT 31 Jan 2013
7 Comments More than 90pc of the complex interest rate derivatives sold by banks to small businesses could have been mis-sold, according to the findings of a review by the Financial Services Authority.
The FSA said that its analysis of 173 sales of interest rate hedging products to SMEs by Britain’s four largest banks found that 90pc “did not comply with one or more of our regulatory requirements”.
Martin Wheatley, chief executive designate of the Financial Conduct Authority, accused lenders of selling businesses “absurdly complex products” and said many customers could now expect compensation from their banks.
“This marks significant progress in our review of these products. We believe that our work will ensure a fair and reasonable outcome for small and unsophisticated businesses,” said Mr Wheatley.
Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland have been given the go-ahead to launch a redress scheme for mis-selling victims, with seven smaller lenders to begin compensating customers from February 12.
Related Articles
Rate swap mis-selling to top £1.5bn
19 Jan 2013
Big Four banks admit to mis-selling interest rate swaps
29 Jun 2012
FSA 'dragging feet' says swaps victim
06 Jan 2013
FSA lifts estimate of mis-sold swaps
29 Sep 2012
Banks have been given six months to complete their reviews of mis-selling, though the regulator said that lenders with large numbers of customers could take up to 12 months.
In its report on swap mis-selling the FSA said a “significant proportion” of businesses sold the products could expect some form of compensation. More than 40,000 swap products were sold to SMEs over the last decade, according to the regulator's latest estimate of the scale of the scandal.
Lenders have already set aside more than £700m against potential swap mis-selling claims, with Barclays making the largest provision so far of £450m.
However, with the FSA’s findings these provisions are likely to be increased, with the total bill expected to reach at least £1.5bn, though many derivatives experts believe the final cost could easily exceed £10bn.
The launch of the FSA's review followed an investigation by The Sunday Telegraph and The Daily Telegraph that uncovered evidence of serious mis-selling by the largest banks.
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Re: Bl***y Banks Again
Panda Thu 31 Jan - 10:10
MPs attack Barclays over its ‘obscene’ pay culture
Barclays' has been warned not to pay a £1 million bonus to its new chief executive
Times photographer, Richard Pohle
Patrick HoskingFinancial Editor
Last updated at 12:01AM, January 31 2013
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The man responsible for setting boardroom pay at Barclays was hammered by MPs and peers yesterday and warned not to pay a £1 million bonus to the new chief executive.
Sir John Sunderland, one of Britain’s most eminent industrialists and a for- mer CBI president, was hit by a barrage of hostile questioning and accused of a significant misjudgment in approving a £2.7 million bonus to Bob Diamond, the bank’s former chief, last year.
He was also told that the embattled bank’s claim to have undergone a big shift in culture and standards since the Libor scandal last summer would
Barclays' has been warned not to pay a £1 million bonus to its new chief executive
Times photographer, Richard Pohle
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1 of 1Barclays' has been warned not to pay a £1 million bonus to its new chief executiveTimes photographer, Richard Pohle
Patrick HoskingFinancial Editor
Last updated at 12:01AM, January 31 2013
var articleType = 'standard';
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The man responsible for setting boardroom pay at Barclays was hammered by MPs and peers yesterday and warned not to pay a £1 million bonus to the new chief executive.
Sir John Sunderland, one of Britain’s most eminent industrialists and a for- mer CBI president, was hit by a barrage of hostile questioning and accused of a significant misjudgment in approving a £2.7 million bonus to Bob Diamond, the bank’s former chief, last year.
He was also told that the embattled bank’s claim to have undergone a big shift in culture and standards since the Libor scandal last summer would
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Re: Bl***y Banks Again
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Switzerland's oldest bank Wegelin pleads guilty to helping US citizens evade tax
Wegelin, the oldest Swiss private bank, has pleaded guilty to a criminal charge of conspiracy for helping wealthy Americans to evade taxes on at least $1.2bn (£743m) hidden in offshore bank accounts.
Under a plea agreement, Wegelin agreed to pay $57.8m, which includes of $20m in restitution to the Internal Revenue Service and a civil forfeiture of $15.8m
7:43PM GMT 03 Jan 2013
The plea came at a hearing before Judge Jed Rakoff in US district court in Manhattan, Reuters reported. Wegelin was the first foreign bank to be indicted by US authorities in recent history. The indictment, announced last February, shook the storied world of Swiss banking.
"Wegelin was aware that this conduct was wrong," Otto Bruderer, a managing partner at Wegelin, said at the hearing.
Under a plea agreement, Wegelin agreed to pay $57.8m, which includes of $20m in restitution to the Internal Revenue Service and a civil forfeiture of $15.8m, the US Justice Department said.
It also agreed to a $22.05m fine, the Justice Department said. Rakoff, who must approve the fine, said stipulated guidelines placed the fine at $14.7m to $29.4m. Sentencing was set for March 4.
Wegelin in a statement said it had set aside money to pay the fine, restitution and forfeiture.
Related Articles
"Once the matter is finally concluded, Wegelin will cease to operate as a bank," Wegelin said.
The case has signalled a ramping up of pressure on nearly a dozen other Swiss and Swiss-style banks under criminal investigation by the Justice Department.
Last year, the US government seized more than $16m of Wegelin funds held in a UBS account in Stamford, Connecticut, via a separate civil forfeiture complaint.
Because Wegelin has no branches outside Switzerland, it used UBS for correspondent banking services, a standard industry practice, to handle money for US-based clients.
Wegelin, founded in 1741, effectively broke itself up following the indictment by selling the non-US portion of its business.
Wegelin, the oldest Swiss private bank, has pleaded guilty to a criminal charge of conspiracy for helping wealthy Americans to evade taxes on at least $1.2bn (£743m) hidden in offshore bank accounts.
Under a plea agreement, Wegelin agreed to pay $57.8m, which includes of $20m in restitution to the Internal Revenue Service and a civil forfeiture of $15.8m
7:43PM GMT 03 Jan 2013
The plea came at a hearing before Judge Jed Rakoff in US district court in Manhattan, Reuters reported. Wegelin was the first foreign bank to be indicted by US authorities in recent history. The indictment, announced last February, shook the storied world of Swiss banking.
"Wegelin was aware that this conduct was wrong," Otto Bruderer, a managing partner at Wegelin, said at the hearing.
Under a plea agreement, Wegelin agreed to pay $57.8m, which includes of $20m in restitution to the Internal Revenue Service and a civil forfeiture of $15.8m, the US Justice Department said.
It also agreed to a $22.05m fine, the Justice Department said. Rakoff, who must approve the fine, said stipulated guidelines placed the fine at $14.7m to $29.4m. Sentencing was set for March 4.
Wegelin in a statement said it had set aside money to pay the fine, restitution and forfeiture.
Related Articles
Vatican hit by Italian ban on all card payments
03 Jan 2013
Goldman chiefs got $65m of share awards before tax vote
03 Jan 2013
Government's start-up loans scheme extended
03 Jan 2013
"Once the matter is finally concluded, Wegelin will cease to operate as a bank," Wegelin said.
The case has signalled a ramping up of pressure on nearly a dozen other Swiss and Swiss-style banks under criminal investigation by the Justice Department.
Last year, the US government seized more than $16m of Wegelin funds held in a UBS account in Stamford, Connecticut, via a separate civil forfeiture complaint.
Because Wegelin has no branches outside Switzerland, it used UBS for correspondent banking services, a standard industry practice, to handle money for US-based clients.
Wegelin, founded in 1741, effectively broke itself up following the indictment by selling the non-US portion of its business.
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Re: Bl***y Banks Again
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Deutsche Bank Avoiding Capital Increase as Jain Sees Pain
By Nicholas Comfort & Annette Weisbach - Feb 1, 2013 8:31 AM GMT
Deutsche Bank AG (DBK) co-Chief Executive Officer Anshu Jain is instilling confidence in shareholders that he’s able to restructure Europe’s biggest lender by assets without asking them to pay for it.
Jain, 50, pledged to do everything to avoid selling shares to raise capital, telling a news conference in Frankfurt yesterday that a 2.17 billion-euro loss ($3 billion) for the fourth quarter showed Deutsche Bank’s new management is ready to “take pain” as it bolsters company finances.
Enlarge image
Deutsche Bank Avoids Share Sale as Jain Follows Path of Pain
Ralph Orlowski/Bloomberg
The company’s loss in the fourth quarter was the biggest in four years as Jain and Fitschen eliminated 1,400 investment banking staff and set aside 1 billion euros for legal costs.
The company’s loss in the fourth quarter was the biggest in four years as Jain and Fitschen eliminated 1,400 investment banking staff and set aside 1 billion euros for legal costs. Photographer: Ralph Orlowski/Bloomberg
5:15
Jan. 31 (Bloomberg) -- Deutsche Bank AG co-Chief Executive Officer Anshu Jain discusses the bank's capital ratio and discussions between regulators and banks on global financial rules. He talks in Frankfurt with Bloomberg Television's Guy Johnson. (Source: Bloomberg)
1:02
Jan. 31 (Bloomberg) -- Deutsche Bank AG co-Chief Executive Officer Anshu Jain discusses the impact of fragmented banking rules on the global flow of capital. He talks in Frankfurt with Bloomberg Television. (Excerpts. Source: Bloomberg)
Enlarge image
Deutsche Bank Has Quarterly Loss as Costs Outweigh Trading Gains
Andrey Rudakov/Bloomberg
Vehicle reflections are seen on the windows of the Deutsche Bank AG headquarters in Moscow.
Vehicle reflections are seen on the windows of the Deutsche Bank AG headquarters in Moscow. Photographer: Andrey Rudakov/Bloomberg
Deutsche Bank is overhauling operations and boosting capital levels, the lowest among Europe’s biggest investment banks, to meet stricter rules laid down by regulators. The shares extended gains in Frankfurt today after the lender said its core Tier 1 capital ratio under Basel III rules, a measure of financial strength, rose to 8 percent on Dec. 31, beating a target of 7.2 percent.
“We are willing to take losses,” Jain said at the news conference. “We don’t think it’s in our shareholders’ best interests for us to issue capital given our discount to book value.”
Kian Abouhossein, an analyst at JPMorgan Chase & Co. (JPM), is among those becoming more convinced that Jain and co-CEO Juergen Fitschen can strengthen the bank’s finances and produce better returns for shareholders. He upgraded the lender to neutral from underweight yesterday, saying the new management “is starting to deal with Deutsche Bank’s legacy issues.”
Share Discount
Deutsche Bank’s share price as a proportion of book value stood at 0.65 today compared with an average of 0.87 for the benchmark 46-member Stoxx 600 Banks Index. The shares rose as much as 1.4 percent, trading at 38.39 euros at 9:26 a.m. in Frankfurt, after rising 2.9 percent yesterday.
“Deutsche Bank is not expensive, but the discount has been justified due to weak capital positioning so far,” Abouhossein said in an e-mailed report to investors from London. “However the capital position was a positive surprise with fourth-quarter results.”
The company’s loss in the fourth quarter was the biggest in four years as Jain and Fitschen eliminated 1,400 investment banking staff and set aside 1 billion euros for legal costs. The loss was also about eight times larger than the average forecast in a Bloomberg survey. It posted a profit of 147 million euros in the fourth quarter of 2011.
Buy Rating
Citigroup Inc. analysts raised their recommendation on Deutsche Bank stock to buy from neutral. Christopher Wheeler, a London-based Mediobanca SpA analyst, raised his recommendation on the shares to neutral from the equivalent of sell on the back of the capital measures in a report today.
The two co-CEOs are reducing pay, cutting almost 2,000 jobs and combining Deutsche Bank’s asset and wealth management divisions to help increase return on equity after tax, a measure of profitability, to more than 12 percent by the end of 2015 from 8 percent in 2011.
“They’ve done extremely well on capital, and that’s what’s important for the stock now,” Andrew Stimpson, an analyst at Keefe, Bruyette & Woods Ltd. in London who has a market perform rating on the stock, said by telephone.
Peer Group
Deutsche Bank said it increased capital levels after it made changes to its risk models and processes and reduced riskier assets faster than expected.
Jain said the company’s core Tier 1 ratio under Basel III would increase to 8.5 percent by the end of March compared with previous guidance of 8 percent, putting it on similar footing to its peer group, albeit “at the lower end.”
Andrew Lim, an analyst at Espirito Santo Investment Bank in London, said the internal modeling Deutsche Bank used to calculate capital adequacy in the fourth quarter “may come back to haunt them” and shareholders may be forced to contribute cash after all.
“Deutsche Bank will have to increase significant equity and/or issue hybrids to achieve parity with peers, which will be significantly detrimental to earnings per share,” Lim, who has a sell recommendation on the shares, said in an e-mailed report to clients.
Jain declined to rule out shareholders contributing to a capital increase should the regulatory environment change.
Risk Models
Deutsche Bank reduced its risk-weighted assets by 55 billion euros in the fourth quarter to help raise the capital ratio, Chief Financial Officer Stefan Krause said yesterday.
Fitschen, 64, and Jain have pledged to increase the bank’s capital ratio to more than 10 percent by the end of 2015. Its biggest competitors will reach similar levels months or years sooner, according to their forecasts.
Restructuring, including the job losses, meant non-interest expenses climbed to 10 billion euros in the fourth quarter from 6.7 billion euros in the same period of 2011. The bank also said it had a 1.9 billion-euro impairment on goodwill and other intangible assets.
Concern about a possible request for investors to contribute to a capital increase meant Deutsche Bank’s shares have lagged behind rivals. They have climbed about 13 percent over the past year compared with an increase of 17 percent for the Stoxx 600 Banks Index.
The company’s investment-banking arm had an unexpected pretax loss of 548 million euros in the fourth quarter. Analysts had expected a profit of 359 million euros.
While Jain and Fitschen have bolstered confidence among shareholders, concern about capital will remain, particularly with regard to new requirements due to be introduced for banks operating in the U.S., JPMorgan’s Abouhossein said.
“The issue remains capital risk curve-balls,” he said.
By Nicholas Comfort & Annette Weisbach - Feb 1, 2013 8:31 AM GMT
Deutsche Bank AG (DBK) co-Chief Executive Officer Anshu Jain is instilling confidence in shareholders that he’s able to restructure Europe’s biggest lender by assets without asking them to pay for it.
Jain, 50, pledged to do everything to avoid selling shares to raise capital, telling a news conference in Frankfurt yesterday that a 2.17 billion-euro loss ($3 billion) for the fourth quarter showed Deutsche Bank’s new management is ready to “take pain” as it bolsters company finances.
Enlarge image
Deutsche Bank Avoids Share Sale as Jain Follows Path of Pain
Ralph Orlowski/Bloomberg
The company’s loss in the fourth quarter was the biggest in four years as Jain and Fitschen eliminated 1,400 investment banking staff and set aside 1 billion euros for legal costs.
The company’s loss in the fourth quarter was the biggest in four years as Jain and Fitschen eliminated 1,400 investment banking staff and set aside 1 billion euros for legal costs. Photographer: Ralph Orlowski/Bloomberg
5:15
Jan. 31 (Bloomberg) -- Deutsche Bank AG co-Chief Executive Officer Anshu Jain discusses the bank's capital ratio and discussions between regulators and banks on global financial rules. He talks in Frankfurt with Bloomberg Television's Guy Johnson. (Source: Bloomberg)
1:02
Jan. 31 (Bloomberg) -- Deutsche Bank AG co-Chief Executive Officer Anshu Jain discusses the impact of fragmented banking rules on the global flow of capital. He talks in Frankfurt with Bloomberg Television. (Excerpts. Source: Bloomberg)
Enlarge image
Deutsche Bank Has Quarterly Loss as Costs Outweigh Trading Gains
Andrey Rudakov/Bloomberg
Vehicle reflections are seen on the windows of the Deutsche Bank AG headquarters in Moscow.
Vehicle reflections are seen on the windows of the Deutsche Bank AG headquarters in Moscow. Photographer: Andrey Rudakov/Bloomberg
Deutsche Bank is overhauling operations and boosting capital levels, the lowest among Europe’s biggest investment banks, to meet stricter rules laid down by regulators. The shares extended gains in Frankfurt today after the lender said its core Tier 1 capital ratio under Basel III rules, a measure of financial strength, rose to 8 percent on Dec. 31, beating a target of 7.2 percent.
“We are willing to take losses,” Jain said at the news conference. “We don’t think it’s in our shareholders’ best interests for us to issue capital given our discount to book value.”
Kian Abouhossein, an analyst at JPMorgan Chase & Co. (JPM), is among those becoming more convinced that Jain and co-CEO Juergen Fitschen can strengthen the bank’s finances and produce better returns for shareholders. He upgraded the lender to neutral from underweight yesterday, saying the new management “is starting to deal with Deutsche Bank’s legacy issues.”
Share Discount
Deutsche Bank’s share price as a proportion of book value stood at 0.65 today compared with an average of 0.87 for the benchmark 46-member Stoxx 600 Banks Index. The shares rose as much as 1.4 percent, trading at 38.39 euros at 9:26 a.m. in Frankfurt, after rising 2.9 percent yesterday.
“Deutsche Bank is not expensive, but the discount has been justified due to weak capital positioning so far,” Abouhossein said in an e-mailed report to investors from London. “However the capital position was a positive surprise with fourth-quarter results.”
The company’s loss in the fourth quarter was the biggest in four years as Jain and Fitschen eliminated 1,400 investment banking staff and set aside 1 billion euros for legal costs. The loss was also about eight times larger than the average forecast in a Bloomberg survey. It posted a profit of 147 million euros in the fourth quarter of 2011.
Buy Rating
Citigroup Inc. analysts raised their recommendation on Deutsche Bank stock to buy from neutral. Christopher Wheeler, a London-based Mediobanca SpA analyst, raised his recommendation on the shares to neutral from the equivalent of sell on the back of the capital measures in a report today.
The two co-CEOs are reducing pay, cutting almost 2,000 jobs and combining Deutsche Bank’s asset and wealth management divisions to help increase return on equity after tax, a measure of profitability, to more than 12 percent by the end of 2015 from 8 percent in 2011.
“They’ve done extremely well on capital, and that’s what’s important for the stock now,” Andrew Stimpson, an analyst at Keefe, Bruyette & Woods Ltd. in London who has a market perform rating on the stock, said by telephone.
Peer Group
Deutsche Bank said it increased capital levels after it made changes to its risk models and processes and reduced riskier assets faster than expected.
Jain said the company’s core Tier 1 ratio under Basel III would increase to 8.5 percent by the end of March compared with previous guidance of 8 percent, putting it on similar footing to its peer group, albeit “at the lower end.”
Andrew Lim, an analyst at Espirito Santo Investment Bank in London, said the internal modeling Deutsche Bank used to calculate capital adequacy in the fourth quarter “may come back to haunt them” and shareholders may be forced to contribute cash after all.
“Deutsche Bank will have to increase significant equity and/or issue hybrids to achieve parity with peers, which will be significantly detrimental to earnings per share,” Lim, who has a sell recommendation on the shares, said in an e-mailed report to clients.
Jain declined to rule out shareholders contributing to a capital increase should the regulatory environment change.
Risk Models
Deutsche Bank reduced its risk-weighted assets by 55 billion euros in the fourth quarter to help raise the capital ratio, Chief Financial Officer Stefan Krause said yesterday.
Fitschen, 64, and Jain have pledged to increase the bank’s capital ratio to more than 10 percent by the end of 2015. Its biggest competitors will reach similar levels months or years sooner, according to their forecasts.
Restructuring, including the job losses, meant non-interest expenses climbed to 10 billion euros in the fourth quarter from 6.7 billion euros in the same period of 2011. The bank also said it had a 1.9 billion-euro impairment on goodwill and other intangible assets.
Concern about a possible request for investors to contribute to a capital increase meant Deutsche Bank’s shares have lagged behind rivals. They have climbed about 13 percent over the past year compared with an increase of 17 percent for the Stoxx 600 Banks Index.
The company’s investment-banking arm had an unexpected pretax loss of 548 million euros in the fourth quarter. Analysts had expected a profit of 359 million euros.
While Jain and Fitschen have bolstered confidence among shareholders, concern about capital will remain, particularly with regard to new requirements due to be introduced for banks operating in the U.S., JPMorgan’s Abouhossein said.
“The issue remains capital risk curve-balls,” he said.
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Banks face £10bn bill over swaps mis-selling scandal
The swaps mis-selling scandal could cost the banking industry more than £10bn, experts have warned.
Martin Wheatley, the incoming chief executive of Britain's new market regulator, said he had not ruled out bring enforcement actions against individual banks and bankers over interest rate swap mis-selling
By Harry Wilson, Banking Editor
6:30AM GMT 01 Feb 2013
28 Comments
Martin Wheatley, the lead official at the Financial Services Authority investigating swap mis-selling, gave the go-ahead for a compensation scheme targeted at small businesses which were mis-sold “absurdly complex financial products”.
However, despite agreeing the scheme with Britain’s major banks, he said he had not “ruled out” bringing enforcement actions against individuals and institutions found to be involved, raising the threat of fines or bans from working in the City.
Mr Wheatley, who is chief executive designate of Britain’s new market regulator, said any decision to take action against lenders would have to follow the full review of the 40,000 interest rate hedging products thought to have been sold to small and medium-sized businesses since 2001.
“This has not been our focus to date … however we won’t rule out that we could bring enforcement actions,” he said .
His comments came as Britain’s big four banks received permission from the FSA to begin compensating customers after a pilot review which found that more than 90pc of interest rate swap product sales had breached the regulator’s rules.
Related Articles
Insiders at the banks believe the compensation bill could now reach £1.5bn, against £630m currently put aside by lenders to meet the cost of claims.
However, derivatives experts and lawyers said this figure substantially underestimated the potential cost of the scandal, which they said could exceed £10bn. A bill of this size would place the scandal’s cost on a par with the more than £12bn provisioned against payment protection insurance (PPI) claims.
Vince Cable, the Business Secretary, denied that swap mis-selling costs would be in the same league as PPI, while Mr Wheatley said the bill would be “containable”.
In a statement , Royal Bank of Scotland said it would “meaningfully increase” the size of its £50m provision at its full-year results this month, while Barclays is also expected to boost its £450m compensation fund .
Lloyds Banking Group is currently the only major bank not to have made a provision and last year said the scandal would not be “material”. However, the lender is now expected to announce its own provision .
Swap victims group Bully Banks greeted the launch of the full review with what its founder, Jeremy Roe, called “guarded optimism”.
“This is a Polo mint settlement as right in the centre of this deal there is a hole. For instance, we still do not know what the FSA means by 'fair and reasonable redress’,” he said.
James Ducker, a former swaps salesman who now runs Benchmark Treasury Pricing, an adviser to victims, said he remained unconvinced . “The [compensation] document is very clever. The banks have given small concessions, mainly to smaller clients, in order to delay the process further and ensure that clients have to fight for every penny.”
The major banks could begin sending customers potential compensation details within days . Among the proposals on offer
will be the full reimbursement of premiums paid by victims about which they claim they were never warned.
Bully Banks says the average claim is about £500,000, but some businesses are asking for compensation running to millions of pounds. A settlement with smaller lenders, including Santander UK and the Co-Operative, will be announced later this month.
Rate Swap Scandal
In Finance »
How the Telegraph broke the rate swap scandal
Banks mis-sold more than 90pc of rate swaps, says FSA
Rate swap mis-selling to top £1.5bn
Timeline: How the Telegraph exposed the rate swap scandal
Q&A: rate swap scandal
The swaps mis-selling scandal could cost the banking industry more than £10bn, experts have warned.
Martin Wheatley, the incoming chief executive of Britain's new market regulator, said he had not ruled out bring enforcement actions against individual banks and bankers over interest rate swap mis-selling
By Harry Wilson, Banking Editor
6:30AM GMT 01 Feb 2013
28 Comments Martin Wheatley, the lead official at the Financial Services Authority investigating swap mis-selling, gave the go-ahead for a compensation scheme targeted at small businesses which were mis-sold “absurdly complex financial products”.
However, despite agreeing the scheme with Britain’s major banks, he said he had not “ruled out” bringing enforcement actions against individuals and institutions found to be involved, raising the threat of fines or bans from working in the City.
Mr Wheatley, who is chief executive designate of Britain’s new market regulator, said any decision to take action against lenders would have to follow the full review of the 40,000 interest rate hedging products thought to have been sold to small and medium-sized businesses since 2001.
“This has not been our focus to date … however we won’t rule out that we could bring enforcement actions,” he said .
His comments came as Britain’s big four banks received permission from the FSA to begin compensating customers after a pilot review which found that more than 90pc of interest rate swap product sales had breached the regulator’s rules.
Related Articles
Swap mis-selling and the dark heart of the City
01 Feb 2013
Cable: rate swap mis-selling an 'apalling scandal'
31 Jan 2013
Swap mis-selling may be a scandal too far for the government and banks
31 Jan 2013
Rate swap mis-selling to top £1.5bn
19 Jan 2013
'Drop bonuses that encourage mis-selling'
16 Jan 2013
Insiders at the banks believe the compensation bill could now reach £1.5bn, against £630m currently put aside by lenders to meet the cost of claims.
However, derivatives experts and lawyers said this figure substantially underestimated the potential cost of the scandal, which they said could exceed £10bn. A bill of this size would place the scandal’s cost on a par with the more than £12bn provisioned against payment protection insurance (PPI) claims.
Vince Cable, the Business Secretary, denied that swap mis-selling costs would be in the same league as PPI, while Mr Wheatley said the bill would be “containable”.
In a statement , Royal Bank of Scotland said it would “meaningfully increase” the size of its £50m provision at its full-year results this month, while Barclays is also expected to boost its £450m compensation fund .
Lloyds Banking Group is currently the only major bank not to have made a provision and last year said the scandal would not be “material”. However, the lender is now expected to announce its own provision .
Swap victims group Bully Banks greeted the launch of the full review with what its founder, Jeremy Roe, called “guarded optimism”.
“This is a Polo mint settlement as right in the centre of this deal there is a hole. For instance, we still do not know what the FSA means by 'fair and reasonable redress’,” he said.
James Ducker, a former swaps salesman who now runs Benchmark Treasury Pricing, an adviser to victims, said he remained unconvinced . “The [compensation] document is very clever. The banks have given small concessions, mainly to smaller clients, in order to delay the process further and ensure that clients have to fight for every penny.”
The major banks could begin sending customers potential compensation details within days . Among the proposals on offer
will be the full reimbursement of premiums paid by victims about which they claim they were never warned.
Bully Banks says the average claim is about £500,000, but some businesses are asking for compensation running to millions of pounds. A settlement with smaller lenders, including Santander UK and the Co-Operative, will be announced later this month.
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Rate Swap Scandal
In Finance »
How the Telegraph broke the rate swap scandal
Banks mis-sold more than 90pc of rate swaps, says FSA
Rate swap mis-selling to top £1.5bn
Timeline: How the Telegraph exposed the rate swap scandal
Q&A: rate swap scandal
|
|
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Re: Bl***y Banks Again
Badboy Fri 1 Feb - 18:36
AT THIS RATE ALL BANKS PROFIT WILL BE SPEND ON COMPENSATION.
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Re: Bl***y Banks Again
Panda Fri 1 Feb - 18:47
Badboy wrote:AT THIS RATE ALL BANKS PROFIT WILL BE SPEND ON COMPENSATION.
Yes Badboy , there will be nothing to lend for Mortgages, Small Businesses etc.
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Re: Bl***y Banks Again
Panda Sat 2 Feb - 13:18
RBS Told To Pay Libor Fine From Bonus Pot
The Treasury wants the taxpayer-owned bank to pay a multimillion-pound fine for the Libor scandal from bankers' bonuses.
12:15pm UK, Saturday 02 February 2013
RBS has been told to pay its Libor fine from its bonus pot
Chancellor George Osborne wants any fine paid by the Royal Bank of Scotland over the Libor scandal to come out of its bankers' bonuses.
RBS, which is majority-owned by the taxpayer, is expected to agree a fine of £400-500m next week with US and British authorities.
It is accused of attempting to rig benchmark interest rates.
Sky's City Editor Mark Kleinman said: "A Treasury source has told Sky News that the money that the US regulators will fine RBS will have to come out of the bank's bonus pot.
Sky's Mark Kleinman said the demand is politically important
"It's very important politically, I think, for the Chancellor to be able to say that the taxpayer is not bearing the financial cost of misconduct by bankers who work for a company that is majority-owned by the taxpayer.
"The Treasury is obviously playing hardball on this, and we'll find out exactly how much RBS is going to be paying in fines in the coming days."
The Treasury expects the fines to be paid not just from the bonus pot for 2012 – likely to be around £250m – but money from future years' bonus pots as well.
RBS - which is 81% owned by taxpayers - is also looking to claw back up to £100m from pay deals previously awarded to executives in its investment bank.
The bank's remuneration committee, which is chaired by Penny Hughes, a non-executive director, is assessing plans for a "flat tax" on the pay packets of hundreds of directors and managing directors in its markets business.
The idea would involve about 15% of prior-year pay awards to the relevant individuals being clawed back, netting a total of as much as £100m.
“George Osborne is sending out a clear signal: You’re paying for this, not us," said Sky's Glen O'Glaza.
"What the Treasury are saying is there won't be bonuses paid this year, but actually your bonuses are going to be clawed back not just this year but probably next year and the year after as well."
Barclays was fined £300m last year for its role in the scandal.
=================
About time too.!!!! Hester has proved a poor choice and should have automatically stopped any more bonuses until the Libor fines were paid.
The Treasury wants the taxpayer-owned bank to pay a multimillion-pound fine for the Libor scandal from bankers' bonuses.
12:15pm UK, Saturday 02 February 2013
RBS has been told to pay its Libor fine from its bonus pot
Chancellor George Osborne wants any fine paid by the Royal Bank of Scotland over the Libor scandal to come out of its bankers' bonuses.
RBS, which is majority-owned by the taxpayer, is expected to agree a fine of £400-500m next week with US and British authorities.
It is accused of attempting to rig benchmark interest rates.
Sky's City Editor Mark Kleinman said: "A Treasury source has told Sky News that the money that the US regulators will fine RBS will have to come out of the bank's bonus pot.
Sky's Mark Kleinman said the demand is politically important "It's very important politically, I think, for the Chancellor to be able to say that the taxpayer is not bearing the financial cost of misconduct by bankers who work for a company that is majority-owned by the taxpayer.
"The Treasury is obviously playing hardball on this, and we'll find out exactly how much RBS is going to be paying in fines in the coming days."
The Treasury expects the fines to be paid not just from the bonus pot for 2012 – likely to be around £250m – but money from future years' bonus pots as well.
RBS - which is 81% owned by taxpayers - is also looking to claw back up to £100m from pay deals previously awarded to executives in its investment bank.
The bank's remuneration committee, which is chaired by Penny Hughes, a non-executive director, is assessing plans for a "flat tax" on the pay packets of hundreds of directors and managing directors in its markets business.
The idea would involve about 15% of prior-year pay awards to the relevant individuals being clawed back, netting a total of as much as £100m.
“George Osborne is sending out a clear signal: You’re paying for this, not us," said Sky's Glen O'Glaza.
"What the Treasury are saying is there won't be bonuses paid this year, but actually your bonuses are going to be clawed back not just this year but probably next year and the year after as well."
Barclays was fined £300m last year for its role in the scandal.
=================
About time too.!!!! Hester has proved a poor choice and should have automatically stopped any more bonuses until the Libor fines were paid.
Last edited by Panda on Mon 4 Feb - 8:19; edited 1 time in total
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Gulf Banks Replace Europeans as Middle East Buyers , S & P Says
Panda Sun 3 Feb - 13:53
Gulf Banks Replace Europeans as Middle East Buyers, S&P Says
By Stefania Bianchi - Feb 3, 2013 1:04 PM GMT
Gulf banks will remain big buyers of of financial assets in the Middle East and North Africa, attracted by lower prices and opportunities for growth, Standard and Poor’s Ratings Services said.
Banks in the six-member Gulf Cooperation Council, which includes Saudi Arabia and the United Arab Emirates, are taking the place of European banks that are shoring up their balance sheets in the aftermath of financial and sovereign-debt crises, S&P said in a report published today.
“Banks in the Gulf have capital to spare,” credit analyst Timucin Engin said in the report. They “are literally capitalizing on their traditional strengths such as strong capital positions, healthy liquidity, and supportive shareholders to pursue acquisitions in MENA emerging-market countries, where opportunities for long-term growth exist.”
Investors from the Gulf are boosting their holdings in countries like Egypt and Turkey, attracted by rising profit and growth in loans. BNP Paribas SA (BNP), France’s biggest bank, in December agreed to sell its Egyptian unit to Dubai-basedEmirates NBD PJSC (EMIRATES) in a $500 million deal. Earlier that monthSociete Generale SA (GLE), France’s second-largest bank by market value, agreed to sell a majority stake in its Egyptian unit toQatar National Bank SAQ (QNBK) for $1.97 billion.
’Longer-term Growth’
These transactions are opportunities for diversification into markets with large “unbanked” populations, which can provide for longer-term growth, S&P said. Banks are seeing growth opportunities in young populations in Turkey, Egypt, and in some Asian countries such as Indonesia, it said.
Commercial Bank of Qatar is continuing talks to acquire 75 percent of Alternatifbank AS (ALNTF) and plans to complete discussions in March, the company said on Jan. 17. Finansbank AS, owned by National Bank of Greece (TELL) SA, will probably be a target for Qatar National Bank SAQ as the Middle East’s biggest bank studies buying a Turkish lender, Ovunc Gursoy, an analyst at Yapi Kredi Yatirim Menkul Degerler has said.
“Potential rating movements depend on a conflux of factors, such as how well capitalized the acquirers will be post-acquisition, how well they will manage the credit exposures arising from these expansions, and whether they will be able to reap potential benefits of diversification,” Engin said.
A “significant risk factor” for such acquisitions is that most banks in the Gulf lack lending and credit underwriting experience outside their region, S&P said.
By Stefania Bianchi - Feb 3, 2013 1:04 PM GMT
Gulf banks will remain big buyers of of financial assets in the Middle East and North Africa, attracted by lower prices and opportunities for growth, Standard and Poor’s Ratings Services said.
Banks in the six-member Gulf Cooperation Council, which includes Saudi Arabia and the United Arab Emirates, are taking the place of European banks that are shoring up their balance sheets in the aftermath of financial and sovereign-debt crises, S&P said in a report published today.
“Banks in the Gulf have capital to spare,” credit analyst Timucin Engin said in the report. They “are literally capitalizing on their traditional strengths such as strong capital positions, healthy liquidity, and supportive shareholders to pursue acquisitions in MENA emerging-market countries, where opportunities for long-term growth exist.”
Investors from the Gulf are boosting their holdings in countries like Egypt and Turkey, attracted by rising profit and growth in loans. BNP Paribas SA (BNP), France’s biggest bank, in December agreed to sell its Egyptian unit to Dubai-basedEmirates NBD PJSC (EMIRATES) in a $500 million deal. Earlier that monthSociete Generale SA (GLE), France’s second-largest bank by market value, agreed to sell a majority stake in its Egyptian unit toQatar National Bank SAQ (QNBK) for $1.97 billion.
’Longer-term Growth’
These transactions are opportunities for diversification into markets with large “unbanked” populations, which can provide for longer-term growth, S&P said. Banks are seeing growth opportunities in young populations in Turkey, Egypt, and in some Asian countries such as Indonesia, it said.
Commercial Bank of Qatar is continuing talks to acquire 75 percent of Alternatifbank AS (ALNTF) and plans to complete discussions in March, the company said on Jan. 17. Finansbank AS, owned by National Bank of Greece (TELL) SA, will probably be a target for Qatar National Bank SAQ as the Middle East’s biggest bank studies buying a Turkish lender, Ovunc Gursoy, an analyst at Yapi Kredi Yatirim Menkul Degerler has said.
“Potential rating movements depend on a conflux of factors, such as how well capitalized the acquirers will be post-acquisition, how well they will manage the credit exposures arising from these expansions, and whether they will be able to reap potential benefits of diversification,” Engin said.
A “significant risk factor” for such acquisitions is that most banks in the Gulf lack lending and credit underwriting experience outside their region, S&P said.
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Re: Bl***y Banks Again
Panda Mon 4 Feb - 0:57
Chancellor George Osborne backs bank break-up powers
The chancellor appears to have accepted the recommendation of a parliamentary commission
Continue reading the main story
Big Banking
The UK's biggest banks will be separated if they fail to follow new rules to ring-fence risky investment operations from High Street operations, the Chancellor is set to announce.
George Osborne will tell City traders that taxpayers will never be expected to bail out failing banks again.
His speech comes on the same day the government introduces its Banking Reform Bill in Parliament.
Legislation will give the government and a banking watchdog new powers.
Mr Osborne had previously warned against "unpicking the consensus" over structural reform of the sector.
But the chancellor appears now to have accepted a major recommendation of last year's Parliamentary Commission on Banking Standards which called for a reserve power to "electrify the ring-fence" if banks did not implement reforms.
The Independent Commission on Banking, led by Sir John Vickers in 2011 had concluded that ring-fencing was the best way to protect "core" retail banking activities from any future investment banking losses.
Under the reforms, investment and High Street banks will also have different chief executives.
Less money
In his speech, Mr Osborne is expected to say: "When the crisis hit, the fire was then so great that the whole economy was sacrificed to put it out.
"The British people need to know that lessons have been learnt. And they have."
He will say his predecessor Alastair Darling felt he had no option but to bail Royal Bank of Scotland out.
"Not just RBS on the High Street, but the trading positions in Asia, the mortgage books in sub-prime America, the property punts in Dubai.
"I want to make sure that the next time a chancellor faces that decision they have a choice. To keep the bank branches going, the cash machines operating, while letting the investment arm fail."
Shadow Treasury minister Chris Leslie said: "If the Chancellor is now being dragged towards a partial climb down, this is a step in the right direction.
"We must see fundamental cultural change in our banks. If this does not happen then banks will need to be split up completely, as we made clear in the autumn."
But Anthony Browne, chief executive of the British Bankers' Association, said the legislation will create "uncertainty for investors, making it more difficult for banks to raise capital, which will ultimately mean that banks will have less money to lend to businesses".
The chancellor appears to have accepted the recommendation of a parliamentary commission Continue reading the main story
Big Banking
- Barclays finance chief to step down
- RBS must meet Libor fines - Osborne
- Santander hurt by Spain bad loans
- Barclays chief to waive his bonus
The UK's biggest banks will be separated if they fail to follow new rules to ring-fence risky investment operations from High Street operations, the Chancellor is set to announce.
George Osborne will tell City traders that taxpayers will never be expected to bail out failing banks again.
His speech comes on the same day the government introduces its Banking Reform Bill in Parliament.
Legislation will give the government and a banking watchdog new powers.
Mr Osborne had previously warned against "unpicking the consensus" over structural reform of the sector.
But the chancellor appears now to have accepted a major recommendation of last year's Parliamentary Commission on Banking Standards which called for a reserve power to "electrify the ring-fence" if banks did not implement reforms.
The Independent Commission on Banking, led by Sir John Vickers in 2011 had concluded that ring-fencing was the best way to protect "core" retail banking activities from any future investment banking losses.
Under the reforms, investment and High Street banks will also have different chief executives.
Less money
In his speech, Mr Osborne is expected to say: "When the crisis hit, the fire was then so great that the whole economy was sacrificed to put it out.
"The British people need to know that lessons have been learnt. And they have."
He will say his predecessor Alastair Darling felt he had no option but to bail Royal Bank of Scotland out.
"Not just RBS on the High Street, but the trading positions in Asia, the mortgage books in sub-prime America, the property punts in Dubai.
"I want to make sure that the next time a chancellor faces that decision they have a choice. To keep the bank branches going, the cash machines operating, while letting the investment arm fail."
Shadow Treasury minister Chris Leslie said: "If the Chancellor is now being dragged towards a partial climb down, this is a step in the right direction.
"We must see fundamental cultural change in our banks. If this does not happen then banks will need to be split up completely, as we made clear in the autumn."
But Anthony Browne, chief executive of the British Bankers' Association, said the legislation will create "uncertainty for investors, making it more difficult for banks to raise capital, which will ultimately mean that banks will have less money to lend to businesses".
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Re: Bl***y Banks Again
Panda Mon 4 Feb - 1:02
But Anthony Browne, chief executive of the British Bankers' Association, said the legislation will create "uncertainty for investors, making it more difficult for banks to raise capital, which will ultimately mean that banks will have less money to lend to businesses".
He would say that wouldn't he!!!! When the Banks had money to spare, they were reluctant to lend. The BBA ought to hang it's head in shame for the damage they have done. This must never happen again.
He would say that wouldn't he!!!! When the Banks had money to spare, they were reluctant to lend. The BBA ought to hang it's head in shame for the damage they have done. This must never happen again.
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Re: Bl***y Banks Again
Panda Mon 4 Feb - 8:23
Banking system must be 'reset’, says Osborne
The Chancellor pledges today to “reset” Britain’s banking system, warning that banks will be broken up if they ignore orders to ringfence their investment and retail banking divisions.
George Osborne will reveal that the Coalition intends to “electrify” the ringfence that will separate the day-to-day retail operations of a bank from its potentially riskier investment banking division. Photo: AFP
By Graham Ruddick
6:25AM GMT 04 Feb 2013
22 Comments
George Osborne will reveal that the Coalition intends to “electrify” the ringfence that will separate the day-to-day retail operations of a bank from its potentially riskier investment banking division.
This means that, if banks are judged by the new Prudential Regulation Authority to be trying to flout the rules, the Government will have the power to order a complete break-up of the bank.
The idea of toughening the ringfence is the brainchild of Andrew Tyrie, chairman of the Parliamentary Commission on Banking Standards.
However, the proposals have already attracted opposition from the banking industry, with the British Bankers’ Association calling the move “regrettable”.
Anthony Browne, chief executive of the BBA, said last night: “This will create uncertainty for investors, making it more difficult for banks to raise capital which will ultimately mean that banks will have less money to lend to businesses.
Related Articles
“No other major economy is considering moving away from the universal model of banking because it undermines banks’ ability to provide all the services businesses need.
“This decision will damage London’s attractiveness as a global financial centre.”
Mr Osborne is expected to say that “electrifying” the ringfence will allow the Government to “arm ourselves in advance” in case banks try to flout the rules.
“We’re not going to repeat the mistakes of the past,” he will add, in a speech at JP Morgan’s offices in Bournemouth.
The legislation, which builds on the recommendations of the Independent Commission on Banking, is being sent to Parliament today and should be law within a year.
“Our country has paid a higher price than any other major economy for what went so badly wrong in our banking system. The anger people feel is very real. Lets turn that anger from a force of destruction into a force for change,” Mr Osborne will say.
“Change that will give us a banking system that will work for us all. In 2013, thanks to the changes we are making, that goal is in sight.”
On top of the new legislation, Mr Osborne will say that he is also overhauling the regulatory system to give the Bank of England more powers, examining the culture and ethics of banking, and seeking to improve competitiveness by making it easier to switch bank accounts.
It is thought that from September, customers could be able to switch account to a rival within a week.
Speaking about the old system of regulation, he will claim: “The fire alarm was ringing, but no one was listening. And when the crisis hit, the fire was then so great that the whole economy was sacrificed to put it out. The British people need to know that lessons have been learnt. And they have.”
Despite increasing the regulatory oversight of banks, Mr Osborne will also seek to highlight the importance of the industry to the economy – which is why, he says, the speech will be given from the offices of JP Morgan, the largest employer in Dorset.
==================
UUUM, wasn't this the idea of Vince Cable some time back who planned to implement this in a few years.?
The Chancellor pledges today to “reset” Britain’s banking system, warning that banks will be broken up if they ignore orders to ringfence their investment and retail banking divisions.
George Osborne will reveal that the Coalition intends to “electrify” the ringfence that will separate the day-to-day retail operations of a bank from its potentially riskier investment banking division. Photo: AFP
By Graham Ruddick
6:25AM GMT 04 Feb 2013
22 Comments George Osborne will reveal that the Coalition intends to “electrify” the ringfence that will separate the day-to-day retail operations of a bank from its potentially riskier investment banking division.
This means that, if banks are judged by the new Prudential Regulation Authority to be trying to flout the rules, the Government will have the power to order a complete break-up of the bank.
The idea of toughening the ringfence is the brainchild of Andrew Tyrie, chairman of the Parliamentary Commission on Banking Standards.
However, the proposals have already attracted opposition from the banking industry, with the British Bankers’ Association calling the move “regrettable”.
Anthony Browne, chief executive of the BBA, said last night: “This will create uncertainty for investors, making it more difficult for banks to raise capital which will ultimately mean that banks will have less money to lend to businesses.
Related Articles
What the Chancellor will say on bank reform
04 Feb 2013
Osborne in talks over plans to split banks
02 Feb 2013
George Osborne wants 'RBS to meet Libor fines from bonuses'
02 Feb 2013
Electric ring fence for banks 'like trying to control POWs in Colditz'
21 Dec 2012
Paul Volcker: ring-fencing banks is not enough to protect taxpayers
23 Sep 2012
Banks 'should be split if they dodge ring-fence'
07 Nov 2012
“No other major economy is considering moving away from the universal model of banking because it undermines banks’ ability to provide all the services businesses need.
“This decision will damage London’s attractiveness as a global financial centre.”
Mr Osborne is expected to say that “electrifying” the ringfence will allow the Government to “arm ourselves in advance” in case banks try to flout the rules.
“We’re not going to repeat the mistakes of the past,” he will add, in a speech at JP Morgan’s offices in Bournemouth.
The legislation, which builds on the recommendations of the Independent Commission on Banking, is being sent to Parliament today and should be law within a year.
“Our country has paid a higher price than any other major economy for what went so badly wrong in our banking system. The anger people feel is very real. Lets turn that anger from a force of destruction into a force for change,” Mr Osborne will say.
“Change that will give us a banking system that will work for us all. In 2013, thanks to the changes we are making, that goal is in sight.”
On top of the new legislation, Mr Osborne will say that he is also overhauling the regulatory system to give the Bank of England more powers, examining the culture and ethics of banking, and seeking to improve competitiveness by making it easier to switch bank accounts.
It is thought that from September, customers could be able to switch account to a rival within a week.
Speaking about the old system of regulation, he will claim: “The fire alarm was ringing, but no one was listening. And when the crisis hit, the fire was then so great that the whole economy was sacrificed to put it out. The British people need to know that lessons have been learnt. And they have.”
Despite increasing the regulatory oversight of banks, Mr Osborne will also seek to highlight the importance of the industry to the economy – which is why, he says, the speech will be given from the offices of JP Morgan, the largest employer in Dorset.
==================
UUUM, wasn't this the idea of Vince Cable some time back who planned to implement this in a few years.?
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Re: Bl***y Banks Again
Panda Tue 5 Feb - 7:44
Let’s get the banks working again - we can worry about reform later
"Any bunch of politicians can bash the banks, chase the headlines, court the populist streak”, George Osborne said on Monday in a keynote speech on banking reform. “But what good would that do?” he then asked.
The Chancellor deserves some applause if he can deliver that holy grail of banking reform – a less monopolistic payments system, making it easier for customers to switch providers Photo: Paul Grover
By Jeremy Warner
6:52PM GMT 04 Feb 2013
29 Comments
Little good indeed, yet it doesn’t seem to have deterred the Chancellor, who went on to indulge in a little gratuitous bank bashing himself. Less than two months ago, the Government specifically ruled out “electrification” of the ring-fence on the grounds it would create “massive uncertainty” to reopen the debate on banking reform.
But, “oh sod it”, the Chancellor must have thought since then. There are no votes in being easy on the banks, so let’s show the public we mean business. It seems to be all part of the Government’s new, daring, bolder and decisive approach to politics – a change in mindset that has already seen the Prime Minister promise a referendum on Europe and may well see the Chancellor temporarily loosen austerity in next month’s Budget with unfunded tax cuts and capital spending increases. No point in being sensible and cautious if the fruits of your endeavours are only going to be handed on a plate to Labour to take advantage of at the time of the next election.
Electrification is an idea that the Chancellor has been bounced into by the Parliamentary Commission on Banking Standards. Set up in the wake of the Libor-rigging scandal, even the Chancellor’s aides privately admit that the beast he created is now essentially out of control, charging around the place like a bull in a china shop and straying into areas which are outside its original remit. For better or worse, the committee seems to have determined that its function is to rewrite the banking reform agenda.
Personally, I doubt that adding the threat of enforced break-up for banks that infringe the ring-fence will in practice make an awful lot of difference, but it’s hard to argue it makes no difference at all. It’s yet another Government U-turn, and at the very least, it adds an extra layer of regulatory uncertainty to a banking system already beset by uncertainties on all sides.
Much obviously depends on the conditions which are set for exercising the nuclear option. If narrowly drawn, then this is no more than a political gimmick with quite limited impact but, if set widely, then the regulator will have the opportunity to act in a more trigger-happy way.
Related Articles
Either way, it is plainly going to make it somewhat harder for banks to raise more capital, and far from underpinning London’s position as Europe’s pre-eminent financial centre, it is almost bound to make it less attractive for inward investors.
It is somewhat ironic that Mr Osborne chose to make his speech on JP Morgan premises, given that the bank’s chairman, Jamie Dimon, is among the most outspoken critics of ring-fencing. Britain is alone among major economies in imposing such structural reform, though admittedly, others are thinking hard about following suit.
All that said, the banks only have themselves to blame for the current backlash. The moment they tapped taxpayers for a bail-out, they surrendered their rights to self government. The Chancellor also deserves some applause if he can deliver that holy grail of banking reform – a less monopolistic payments system, making it easier for customers to switch providers. Many have tried, all have failed. I’ll believe it when I see it.
In the round, however, the messages on banking and the City are becoming ever more mixed. Regulators urge banks to raise more capital while simultaneously making it harder for them to do so. Criticised for lending far too much during the boom, bankers are now told that they are not lending nearly enough even as the capital requirements governing higher risk forms of small business lending are raised ever higher.
Royal Bank of Scotland is told that it must axe bonuses this year in punishment for the Libor scandal, but by doing so it only floors the bit of the business – investment banking - which is making all the money, thereby depriving RBS of the profits it needs to work off its bad debts. The Government wants a business it can sell back to investors at a profit, but seemingly it undermines this endeavour at every available opportunity. Again, the City is celebrated by the Government as a British success story on the one hand, but is demonised on the other for allegedly wiping 10pc off the country’s wealth (Osborne’s figure). Politics is a mass of compromises and contradictions, I know, but for heaven’s sake make up your mind.
The problem with much of the banking agenda is that it has become fixated with the rear-view mirror, or the problems of the past. It is perfectly reasonable that governments should want to bulletproof the system against a repetition of the events of four or five years back. We cannot have taxpayers held to ransom again by too-big-to-fail banks.
But the immediate focus should be not on the failings of the past, but on restoring the banking system to health so that it can play its proper role in providing credit and galvanising growth. Instead, we have a whole raft of pro-cyclical measures which only conspire to make a bad situation even worse.
Ask the Government what’s wrong with credit and it cites lack of supply. Ask the banks and they say lack of demand. Ask the small business lobby, and it says unduly onerous terms – apparently incredibly loose monetary policy isn’t getting through to the real economy.
In fact it is all these things, but above all, it is lack of certainty and loss of confidence. Much has been written about the mountainous cash deposits of big companies, but a similar story is told by SMEs, which in the year to last June saw their cash deposits net of borrowing swell from £8bn to £20bn. This hoarding of cash, or reluctance to borrow, is incredibly destructive of investment and growth.
In normal times, banks create deposits by extending loans. In bad times they do the reverse; they destroy money by shrinking their loan books. Quantitative easing (central bank money printing) has succeeded in keeping the quantity of money nicely topped up, but lending has lagged money creation, so it’s not clear that QE has actually benefited the real economy by very much. Both business and household lending remains deep in the doldrums.
Banks arguably lent far too much in the run-up to the crisis ; by the same token, however, they are now lending far too little to allow for a functioning economy. Credit easing of the type being trialled through the Government’s “funding for lending scheme” promises better outcomes than QE, but it is probably not big enough to provide the kick-start credit creation really needs.
There is lots of pent-up demand out there, both in the mortgage and SME markets, but you are not going to get the banks to answer it by effectively trying to close them down. Let’s first get the banks working again. We can worry about reforming them later.
================================
Question;- Shouldn't the guilty Banks automatically suspend bonuses to their Staff who brought about the Libor crisis. ?
I'm sure the Investment Staff earn a very good basic Salary and there is no Company I know of which pays its staff a bonus for losses. I remember ICI used to give Staff shares instead of Bonuses , wouldn't that be a better idea.
"Any bunch of politicians can bash the banks, chase the headlines, court the populist streak”, George Osborne said on Monday in a keynote speech on banking reform. “But what good would that do?” he then asked.
The Chancellor deserves some applause if he can deliver that holy grail of banking reform – a less monopolistic payments system, making it easier for customers to switch providers Photo: Paul Grover
By Jeremy Warner
6:52PM GMT 04 Feb 2013
29 Comments Little good indeed, yet it doesn’t seem to have deterred the Chancellor, who went on to indulge in a little gratuitous bank bashing himself. Less than two months ago, the Government specifically ruled out “electrification” of the ring-fence on the grounds it would create “massive uncertainty” to reopen the debate on banking reform.
But, “oh sod it”, the Chancellor must have thought since then. There are no votes in being easy on the banks, so let’s show the public we mean business. It seems to be all part of the Government’s new, daring, bolder and decisive approach to politics – a change in mindset that has already seen the Prime Minister promise a referendum on Europe and may well see the Chancellor temporarily loosen austerity in next month’s Budget with unfunded tax cuts and capital spending increases. No point in being sensible and cautious if the fruits of your endeavours are only going to be handed on a plate to Labour to take advantage of at the time of the next election.
Electrification is an idea that the Chancellor has been bounced into by the Parliamentary Commission on Banking Standards. Set up in the wake of the Libor-rigging scandal, even the Chancellor’s aides privately admit that the beast he created is now essentially out of control, charging around the place like a bull in a china shop and straying into areas which are outside its original remit. For better or worse, the committee seems to have determined that its function is to rewrite the banking reform agenda.
Personally, I doubt that adding the threat of enforced break-up for banks that infringe the ring-fence will in practice make an awful lot of difference, but it’s hard to argue it makes no difference at all. It’s yet another Government U-turn, and at the very least, it adds an extra layer of regulatory uncertainty to a banking system already beset by uncertainties on all sides.
Much obviously depends on the conditions which are set for exercising the nuclear option. If narrowly drawn, then this is no more than a political gimmick with quite limited impact but, if set widely, then the regulator will have the opportunity to act in a more trigger-happy way.
Related Articles
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04 Feb 2013
'Crowdfunding' gets FSA approval
04 Feb 2013
Osborne warned reforms will devalue UK banks
04 Feb 2013
Government to reform payments system
04 Feb 2013
Either way, it is plainly going to make it somewhat harder for banks to raise more capital, and far from underpinning London’s position as Europe’s pre-eminent financial centre, it is almost bound to make it less attractive for inward investors.
It is somewhat ironic that Mr Osborne chose to make his speech on JP Morgan premises, given that the bank’s chairman, Jamie Dimon, is among the most outspoken critics of ring-fencing. Britain is alone among major economies in imposing such structural reform, though admittedly, others are thinking hard about following suit.
All that said, the banks only have themselves to blame for the current backlash. The moment they tapped taxpayers for a bail-out, they surrendered their rights to self government. The Chancellor also deserves some applause if he can deliver that holy grail of banking reform – a less monopolistic payments system, making it easier for customers to switch providers. Many have tried, all have failed. I’ll believe it when I see it.
In the round, however, the messages on banking and the City are becoming ever more mixed. Regulators urge banks to raise more capital while simultaneously making it harder for them to do so. Criticised for lending far too much during the boom, bankers are now told that they are not lending nearly enough even as the capital requirements governing higher risk forms of small business lending are raised ever higher.
Royal Bank of Scotland is told that it must axe bonuses this year in punishment for the Libor scandal, but by doing so it only floors the bit of the business – investment banking - which is making all the money, thereby depriving RBS of the profits it needs to work off its bad debts. The Government wants a business it can sell back to investors at a profit, but seemingly it undermines this endeavour at every available opportunity. Again, the City is celebrated by the Government as a British success story on the one hand, but is demonised on the other for allegedly wiping 10pc off the country’s wealth (Osborne’s figure). Politics is a mass of compromises and contradictions, I know, but for heaven’s sake make up your mind.
The problem with much of the banking agenda is that it has become fixated with the rear-view mirror, or the problems of the past. It is perfectly reasonable that governments should want to bulletproof the system against a repetition of the events of four or five years back. We cannot have taxpayers held to ransom again by too-big-to-fail banks.
But the immediate focus should be not on the failings of the past, but on restoring the banking system to health so that it can play its proper role in providing credit and galvanising growth. Instead, we have a whole raft of pro-cyclical measures which only conspire to make a bad situation even worse.
Ask the Government what’s wrong with credit and it cites lack of supply. Ask the banks and they say lack of demand. Ask the small business lobby, and it says unduly onerous terms – apparently incredibly loose monetary policy isn’t getting through to the real economy.
In fact it is all these things, but above all, it is lack of certainty and loss of confidence. Much has been written about the mountainous cash deposits of big companies, but a similar story is told by SMEs, which in the year to last June saw their cash deposits net of borrowing swell from £8bn to £20bn. This hoarding of cash, or reluctance to borrow, is incredibly destructive of investment and growth.
In normal times, banks create deposits by extending loans. In bad times they do the reverse; they destroy money by shrinking their loan books. Quantitative easing (central bank money printing) has succeeded in keeping the quantity of money nicely topped up, but lending has lagged money creation, so it’s not clear that QE has actually benefited the real economy by very much. Both business and household lending remains deep in the doldrums.
Banks arguably lent far too much in the run-up to the crisis ; by the same token, however, they are now lending far too little to allow for a functioning economy. Credit easing of the type being trialled through the Government’s “funding for lending scheme” promises better outcomes than QE, but it is probably not big enough to provide the kick-start credit creation really needs.
There is lots of pent-up demand out there, both in the mortgage and SME markets, but you are not going to get the banks to answer it by effectively trying to close them down. Let’s first get the banks working again. We can worry about reforming them later.
================================
Question;- Shouldn't the guilty Banks automatically suspend bonuses to their Staff who brought about the Libor crisis. ?
I'm sure the Investment Staff earn a very good basic Salary and there is no Company I know of which pays its staff a bonus for losses. I remember ICI used to give Staff shares instead of Bonuses , wouldn't that be a better idea.
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Re: Bl***y Banks Again
Panda Tue 5 Feb - 17:57
Bank PPI compensation money 'will run out by December'
Money set aside by the major banks to compensate victims mis-sold payment
protection insurance (PPI) will run out by December, according to Which?, the
consumer group.
PPI was commonly pushed on
credit card customers Photo:
ALAMY
By Andrew Oxlade
2:23PM GMT 05 Feb 2013
34 Comments
Britain's biggest banks have each set aside multi-billion funds to meet
claims on PPI, which was commonly sold alongside credit cards and loans.
But Which? has calculated how long these compensation pots might last given
the frantic speed at which complaints were being lodged last year.
Barclays became the latest bank today to increase the money it has set aside,
earmarking a further £600m and taking the total to £2.6bn.
Which? says that based on the pace of claims in the first half of 2012, the
last published figures, that Barclays's PPI compensation fund would be exhausted
by October.
“Some banks have been in denial about the true scale of the payment
protection scandal," said Richard Lloyd, Which? executive director. "They must
come clean about how many more PPI complaints they’re expecting, publish updates
on the amounts that have been paid back, and claw back bonuses from executives
who presided over this £13.6bn mis-selling fiasco.
Related Articles
“The banks should be proactively contacting their customers and making sure
it is as easy as possible for those with a legitimate claim to get their money
back, without any hassle.”
Source: Which?
More than 2.5 million people have already been paid compensation, totalling
£8.05bn, for being mis-sold the insurance. PPI was meant to pay for people's
loans and credit cards if they fell ill or lost their jobs. However, in many
cases, people were not eligible to claim on the insurance. In some cases they
have been repaid thousands of pounds. The average pay out is £2,750.
Which? says the it takes the total amount set aside by the banks to £13.6bn.
Estimates have suggested that the total bill could come to £25bn.
The peak month for payouts was May last year, at £730m but the settlements
were still running at £578m in October and £410m in November.
The banks have lobbied the Financial Services Authority to set a deadline for
claims to be made of April 2014. The industry has raised concerns about the high
level of bogus claims being made with millions of consumers being contacted by
claims management companies. These firms typically take 25 per cent of any
compensation.
The FSA has said it will not set a cut-off point without a full public
inquiry.
Consumers already face a lengthy delay if their bank or building society
refuses to pay and they are forced to take their case to the Financial Ombudsman
Service (FOS). It has emerged that some people are waiting for more than a year.
Monthly PPI over the past two years
- FSA guidance: How to claim back
mis-sold PPI
Money set aside by the major banks to compensate victims mis-sold payment
protection insurance (PPI) will run out by December, according to Which?, the
consumer group.
PPI was commonly pushed on
credit card customers Photo:
ALAMY
By Andrew Oxlade
2:23PM GMT 05 Feb 2013
34 Comments Britain's biggest banks have each set aside multi-billion funds to meet
claims on PPI, which was commonly sold alongside credit cards and loans.
But Which? has calculated how long these compensation pots might last given
the frantic speed at which complaints were being lodged last year.
Barclays became the latest bank today to increase the money it has set aside,
earmarking a further £600m and taking the total to £2.6bn.
Which? says that based on the pace of claims in the first half of 2012, the
last published figures, that Barclays's PPI compensation fund would be exhausted
by October.
“Some banks have been in denial about the true scale of the payment
protection scandal," said Richard Lloyd, Which? executive director. "They must
come clean about how many more PPI complaints they’re expecting, publish updates
on the amounts that have been paid back, and claw back bonuses from executives
who presided over this £13.6bn mis-selling fiasco.
Related Articles
Lloyds in push to halt false PPI claims
02 Feb 2013
Ombudsman: PPI complaints near quarter of a
million mark
29 Jan 2013
The PPI that home owners may still need
29 Jan 2013
Banks push for PPI deadline: how to make your
claim
19 Jan 2013
Barclays boss backs separation powers
05 Feb 2013
Barclays sets aside £1bn more for mis-selling
05 Feb 2013
“The banks should be proactively contacting their customers and making sure
it is as easy as possible for those with a legitimate claim to get their money
back, without any hassle.”
| Lloyds Banking Group (includes Halifax) | March 2013 |
| Barclays | October 2013 |
| RBS-NatWest | June 2013 |
| HSBC | December 2013 |
More than 2.5 million people have already been paid compensation, totalling
£8.05bn, for being mis-sold the insurance. PPI was meant to pay for people's
loans and credit cards if they fell ill or lost their jobs. However, in many
cases, people were not eligible to claim on the insurance. In some cases they
have been repaid thousands of pounds. The average pay out is £2,750.
Which? says the it takes the total amount set aside by the banks to £13.6bn.
Estimates have suggested that the total bill could come to £25bn.
The peak month for payouts was May last year, at £730m but the settlements
were still running at £578m in October and £410m in November.
The banks have lobbied the Financial Services Authority to set a deadline for
claims to be made of April 2014. The industry has raised concerns about the high
level of bogus claims being made with millions of consumers being contacted by
claims management companies. These firms typically take 25 per cent of any
compensation.
The FSA has said it will not set a cut-off point without a full public
inquiry.
Consumers already face a lengthy delay if their bank or building society
refuses to pay and they are forced to take their case to the Financial Ombudsman
Service (FOS). It has emerged that some people are waiting for more than a year.
Monthly PPI over the past two years
- FSA guidance: How to claim back
mis-sold PPI
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Re: Bl***y Banks Again
Panda Tue 5 Feb - 20:37
RBS Chief Gives Up £4m Shares In Libor Exit
John Hourican will forfeit a £4m share award following
pressure from George Osborne over the Libor scandal, Sky News can reveal.
7:51pm UK,
Tuesday 05 February 2013
RBS investment chief John Hourican will forfeit £4m in
share awards
By Mark Kleinman, City Editor
The head of RBS's investment bank will forfeit millions of pounds
in past share awards following political pressure for a prominent scalp from the
group's involvement in the global Libor-rigging scandal.
I have learnt that John Hourican, who was brought in to rescue the business
after the bank was bailed out by British taxpayers in 2008, is to relinquish
roughly £4m in share options awarded to him based on past performance.
He will receive a year's salary in lieu of notice, worth around £700,000.
The details of his exit, including the cancellation of his share options, are
expected to be announced on Wednesday by RBS.
Mr Hourican will leave the bank at the end of the month, having overseen a
massive winding-down of RBS's investment banking operation during the last
four-and-a-half years.
His role is effectively being made redundant by a restructuring of the
division, and he is leaving despite the fact that both regulators and the bank's
board acknowledge that he had no knowledge of, or involvement in, Libor-rigging
misdemeanours.
Mr Hourican was asked by the bank's board to forfeit the £4m he is owed in
shares in the last few days, according to insiders, and accepted because he is
said to have felt it would be in the best interests of RBS.
In addition, he will not receive any form of bonus or share award for
2012.
The bank, which is 82% owned by UK taxpayers, will on Wednesday agree to pay
approximately £400m in fines to UK and US regulators.
The majority of the settlement will cross the Atlantic and will be recouped
from past RBS bonus pools, as well as payouts for 2012, following a demand from
Chancellor George Osborne.
Around £100m of this will be clawed back from hundreds of senior managers
across the RBS markets business, as Sky News revealed last week.
RBS is expected to spell out the details of the clawback arrangements on
Wednesday.
Regulatory sources said that the Financial Services Authority (FSA) had told
RBS that Mr Hourican retains its confidence and will not be prohibited from
taking a future role in the banking industry.
Mr Osborne's intervention underlines the acute political sensitivity
surrounding such huge fines being paid by a bank majority-owned by
taxpayers.
Speaking on Monday, Mr Osborne hinted that the job of Stephen Hester, RBS
chief executive, was safe but added: "It is right that those who are responsible
- not just those who are directly responsible, but also those who were doing the
supervising - must also bear a level of responsibility."
Last week, Sky News revealed the looming row between RBS and the
Treasury over Mr Hourican's share awards.
Mr Hourican is understood to have stepped in to protect the role of Peter
Nielsen, who heads the markets business and whose job is now thought to be
safe.
"He has shown real leadership over this," one ally of Mr Hourican said.
The discussions between RBS and the authorities had not been completed on
Tuesday night, but people close to the talks said that the final settlement is
likely to include fines totalling roughly £400m.
Between £85m and £90m of the total will go to the FSA, with the remaining sum
split between the US Department of Justice and the Commodity Futures Trading
Commission.
The settlement will make RBS the third bank to acknowledge that employees
committed abuses of the Libor-setting regime, either for personal gain or to
project a false impression of their bank's health.
Barclays was fined more than £290m, with UBS, the Swiss bank, hit by
penalties of $1.5bn (£958m).
Emails and instant messages sent by RBS traders will also be released by
regulators depicting the brazen way in which they attempted to manipulate the
crucial inter-bank borrowing rates.
One of the outstanding issues on Tuesday night was whether RBS would be able
to avoid criminal charges as part of the settlement, for which the DoJ has been
pressing.
Settlements with other banks will follow in the coming months.
RBS and the FSA declined to comment. Mr Hourican could not be reached
John Hourican will forfeit a £4m share award following
pressure from George Osborne over the Libor scandal, Sky News can reveal.
7:51pm UK,
Tuesday 05 February 2013
RBS investment chief John Hourican will forfeit £4m in
share awards
By Mark Kleinman, City Editor
The head of RBS's investment bank will forfeit millions of pounds
in past share awards following political pressure for a prominent scalp from the
group's involvement in the global Libor-rigging scandal.
I have learnt that John Hourican, who was brought in to rescue the business
after the bank was bailed out by British taxpayers in 2008, is to relinquish
roughly £4m in share options awarded to him based on past performance.
He will receive a year's salary in lieu of notice, worth around £700,000.
The details of his exit, including the cancellation of his share options, are
expected to be announced on Wednesday by RBS.
Mr Hourican will leave the bank at the end of the month, having overseen a
massive winding-down of RBS's investment banking operation during the last
four-and-a-half years.
His role is effectively being made redundant by a restructuring of the
division, and he is leaving despite the fact that both regulators and the bank's
board acknowledge that he had no knowledge of, or involvement in, Libor-rigging
misdemeanours.
Mr Hourican was asked by the bank's board to forfeit the £4m he is owed in
shares in the last few days, according to insiders, and accepted because he is
said to have felt it would be in the best interests of RBS.
In addition, he will not receive any form of bonus or share award for
2012.
The bank, which is 82% owned by UK taxpayers, will on Wednesday agree to pay
approximately £400m in fines to UK and US regulators.
The majority of the settlement will cross the Atlantic and will be recouped
from past RBS bonus pools, as well as payouts for 2012, following a demand from
Chancellor George Osborne.
Around £100m of this will be clawed back from hundreds of senior managers
across the RBS markets business, as Sky News revealed last week.
RBS is expected to spell out the details of the clawback arrangements on
Wednesday.
Regulatory sources said that the Financial Services Authority (FSA) had told
RBS that Mr Hourican retains its confidence and will not be prohibited from
taking a future role in the banking industry.
Mr Osborne's intervention underlines the acute political sensitivity
surrounding such huge fines being paid by a bank majority-owned by
taxpayers.
Speaking on Monday, Mr Osborne hinted that the job of Stephen Hester, RBS
chief executive, was safe but added: "It is right that those who are responsible
- not just those who are directly responsible, but also those who were doing the
supervising - must also bear a level of responsibility."
Last week, Sky News revealed the looming row between RBS and the
Treasury over Mr Hourican's share awards.
Mr Hourican is understood to have stepped in to protect the role of Peter
Nielsen, who heads the markets business and whose job is now thought to be
safe.
"He has shown real leadership over this," one ally of Mr Hourican said.
The discussions between RBS and the authorities had not been completed on
Tuesday night, but people close to the talks said that the final settlement is
likely to include fines totalling roughly £400m.
Between £85m and £90m of the total will go to the FSA, with the remaining sum
split between the US Department of Justice and the Commodity Futures Trading
Commission.
The settlement will make RBS the third bank to acknowledge that employees
committed abuses of the Libor-setting regime, either for personal gain or to
project a false impression of their bank's health.
Barclays was fined more than £290m, with UBS, the Swiss bank, hit by
penalties of $1.5bn (£958m).
Emails and instant messages sent by RBS traders will also be released by
regulators depicting the brazen way in which they attempted to manipulate the
crucial inter-bank borrowing rates.
One of the outstanding issues on Tuesday night was whether RBS would be able
to avoid criminal charges as part of the settlement, for which the DoJ has been
pressing.
Settlements with other banks will follow in the coming months.
RBS and the FSA declined to comment. Mr Hourican could not be reached
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Re: Bl***y Banks Again
Panda Wed 6 Feb - 11:11
RBS investment chief John Hourican to resign and waive £4m bonus
The head of Royal Bank of Scotland’s investment banking arm is set to give
up a bonus pot worth £4m as he resigns from the lender over its involvement in
Libor-rigging.
John Hourican is expected to
leave the bank at the end of the month, with a successor to be announced in due
course Photo: Getty
Images
By Helia Ebrahimi, and Harry
Wilson
7:23AM GMT 06 Feb 2013
53 Comments
John Hourican, chief executive of markets and international banking, will
leave the bank with the minimum pay-off to which he is entitled – a year’s basic
salary of £700,000 – as he becomes the most senior executive at the
taxpayer-backed lender to leave his job in the wake of the rate-rigging scandal.
Mr Hourican’s departure is expected to be announced to RBS staff as the bank
publishes details of a settlement of around £400m over accusations it
manipulated key global borrowing rates between 2005 and 2010. It is not known
whether the bank will admit any liability.
The Irish banker is expected to forgo share awards worth £4m as part of a
series of moves by the bank intended to defuse public anger, that will also see
about £250m deducted from RBS’s bonus pool.
RBS said in a statement on early on
Wednesday that it was in late-stage talks with the Financial Services Authority,
the US Commodity Futures Trading Commission and the US Department of Justice to
settle the Libor allegations.
"Although the settlements remain to be agreed, RBS expects they will include
the payment of significant penalties as well as certain other sanctions. RBS
will update the market on all pertinent issues relating to this matter shortly,"
the bank said.
Related Articles
Friends of Mr Hourican expressed anger at his departure, pointing out that he
was not in charge of the investment banking business for much of the time
Libor-rigging was going on.
“George Osborne has played the part of a school room bully which will hurt
the taxpayer in the end,” said one source at the bank. He added: “John slaved
every day for this company. He is taking the fall. But he will leave with his
head held high.”
Mr Hourican is expected to leave the bank at the end of the month, with a
successor to be announced in due course. However, his division has been targeted
for further shrinkage, despite already being more than halved in size.
Chief executive Stephen Hester and chairman Sir Philip Hampton are expected
to hold a meeting on Wednesday afternoon to discuss the scandal. Mr Hester has
already said he will not be taking a bonus himself for 2012 in the wake of last
year’s IT disaster that saw some customers lose access to their money for
several weeks.
In an email to staff on Tuesday night, Mr
Hester apologised for the speculation surrounding the Libor settlement
announcement, and said he and Sir Philip would not be “ducking the difficult
questions”. He added: “We will also ensure that wrongdoers have been punished.”
RBS’s expected admission that it was involved in Libor-rigging will make it
the second British bank to settle with the US and UK authorities after Barclays
paid £290m in fines last June. HSBC and Lloyds Banking Group are also being
investigated as part of the probe.
Officials from the Department of Justice and the Commodity Futures Trading
Commission in the US, as well as the Financial Services Authority in London have
been investigating RBS, along with more than a dozen other major financial
institutions as part of a global into the conspiracy to manipulate rates for
profit.
The Serious Fraud Office last year arrested three individuals over their
alleged involvement in Libor-rigging, including Tom Hayes, a former trader for
UBS and Citigroup. The SFO has said it hopes to bring criminal charges against
those found to be involved in rate manipulation.
One source close to the investigation said that Wednesday’s settlement would
include details of what are thought to be highly embarrassing emails sent by RBS
staff implicated in the scandal.
Last month, senior Barclays executives, including investment banking chief
Rich Ricci and finance director Chris Lucas, were identified on a “shortlist” of
25 names by regulators looking at Libor manipulation. The bankers names were
released after a London court turned down an attempt by some of the individuals
to remain anonymous in case being brought against Barclays. The judge in the
case said: “The cat is out of the bag. It wouldn’t take a rocket scientist to
work out who they are.”
Business Secretary Vince Cable will claim on Wednesday that any hopes of a
privatisation of RBS “now looks a distant dream, unless at an unacceptable
loss”. He will urge the Chancellor to consider more radical measures to get the
bank off the Government’s hands. Mr Cable believes the Government should launch
a giveaway of RBS securities that would allow voters to share in the upside of
the bank’s share price above a predefined floor price.
=================================
Vince Cable is the only one who has shown common sense., he was the first to advocate separating the Investment Dept. from the Retail sector. Moneysupermarket Chief in studio discussion this morning said there needs to be structural changes to the Banking System . Real change in that Customers can now change their Bank without penalties.
The concensus was this crisis will not go away for a long time and the U.S. wants to bring Lawsuits, not just fines, against those guilty.
A Member of the Financial Services Club at the discussion thought it was tragic that Britain , considered the finest Banks in the World who had 80% of World Business at one time could be reduced to greedy profiteering and those at the top knew what was going on.
The head of Royal Bank of Scotland’s investment banking arm is set to give
up a bonus pot worth £4m as he resigns from the lender over its involvement in
Libor-rigging.
John Hourican is expected to
leave the bank at the end of the month, with a successor to be announced in due
course Photo: Getty
Images
By Helia Ebrahimi, and Harry
Wilson
7:23AM GMT 06 Feb 2013
53 Comments John Hourican, chief executive of markets and international banking, will
leave the bank with the minimum pay-off to which he is entitled – a year’s basic
salary of £700,000 – as he becomes the most senior executive at the
taxpayer-backed lender to leave his job in the wake of the rate-rigging scandal.
Mr Hourican’s departure is expected to be announced to RBS staff as the bank
publishes details of a settlement of around £400m over accusations it
manipulated key global borrowing rates between 2005 and 2010. It is not known
whether the bank will admit any liability.
The Irish banker is expected to forgo share awards worth £4m as part of a
series of moves by the bank intended to defuse public anger, that will also see
about £250m deducted from RBS’s bonus pool.
RBS said in a statement on early on
Wednesday that it was in late-stage talks with the Financial Services Authority,
the US Commodity Futures Trading Commission and the US Department of Justice to
settle the Libor allegations.
"Although the settlements remain to be agreed, RBS expects they will include
the payment of significant penalties as well as certain other sanctions. RBS
will update the market on all pertinent issues relating to this matter shortly,"
the bank said.
Related Articles
Stephen Hester's message to staff
05 Feb 2013
UBS bonuses to be part-paid as 'bail-in
bonds’
05 Feb 2013
RBS plans branch IPO after Santander failure
02 Feb 2013
George Osborne wants 'RBS to meet Libor fines
from bonuses'
02 Feb 2013
Libor: US pushes for criminal charges at RBS
29 Jan 2013
British taxpayers funded £14bn Irish bail-out
19 Jan 2013
Friends of Mr Hourican expressed anger at his departure, pointing out that he
was not in charge of the investment banking business for much of the time
Libor-rigging was going on.
“George Osborne has played the part of a school room bully which will hurt
the taxpayer in the end,” said one source at the bank. He added: “John slaved
every day for this company. He is taking the fall. But he will leave with his
head held high.”
Mr Hourican is expected to leave the bank at the end of the month, with a
successor to be announced in due course. However, his division has been targeted
for further shrinkage, despite already being more than halved in size.
Chief executive Stephen Hester and chairman Sir Philip Hampton are expected
to hold a meeting on Wednesday afternoon to discuss the scandal. Mr Hester has
already said he will not be taking a bonus himself for 2012 in the wake of last
year’s IT disaster that saw some customers lose access to their money for
several weeks.
In an email to staff on Tuesday night, Mr
Hester apologised for the speculation surrounding the Libor settlement
announcement, and said he and Sir Philip would not be “ducking the difficult
questions”. He added: “We will also ensure that wrongdoers have been punished.”
RBS’s expected admission that it was involved in Libor-rigging will make it
the second British bank to settle with the US and UK authorities after Barclays
paid £290m in fines last June. HSBC and Lloyds Banking Group are also being
investigated as part of the probe.
Officials from the Department of Justice and the Commodity Futures Trading
Commission in the US, as well as the Financial Services Authority in London have
been investigating RBS, along with more than a dozen other major financial
institutions as part of a global into the conspiracy to manipulate rates for
profit.
The Serious Fraud Office last year arrested three individuals over their
alleged involvement in Libor-rigging, including Tom Hayes, a former trader for
UBS and Citigroup. The SFO has said it hopes to bring criminal charges against
those found to be involved in rate manipulation.
One source close to the investigation said that Wednesday’s settlement would
include details of what are thought to be highly embarrassing emails sent by RBS
staff implicated in the scandal.
Last month, senior Barclays executives, including investment banking chief
Rich Ricci and finance director Chris Lucas, were identified on a “shortlist” of
25 names by regulators looking at Libor manipulation. The bankers names were
released after a London court turned down an attempt by some of the individuals
to remain anonymous in case being brought against Barclays. The judge in the
case said: “The cat is out of the bag. It wouldn’t take a rocket scientist to
work out who they are.”
Business Secretary Vince Cable will claim on Wednesday that any hopes of a
privatisation of RBS “now looks a distant dream, unless at an unacceptable
loss”. He will urge the Chancellor to consider more radical measures to get the
bank off the Government’s hands. Mr Cable believes the Government should launch
a giveaway of RBS securities that would allow voters to share in the upside of
the bank’s share price above a predefined floor price.
=================================
Vince Cable is the only one who has shown common sense., he was the first to advocate separating the Investment Dept. from the Retail sector. Moneysupermarket Chief in studio discussion this morning said there needs to be structural changes to the Banking System . Real change in that Customers can now change their Bank without penalties.
The concensus was this crisis will not go away for a long time and the U.S. wants to bring Lawsuits, not just fines, against those guilty.
A Member of the Financial Services Club at the discussion thought it was tragic that Britain , considered the finest Banks in the World who had 80% of World Business at one time could be reduced to greedy profiteering and those at the top knew what was going on.
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Re: Bl***y Banks Again
Panda Wed 6 Feb - 16:50
Libor Lies Revealed in Rigging of $300 Trillion Benchmark
By Liam Vaughan & Gavin Finch - Jan 28, 2013 9:54 PM GMT
Bloomberg Markets Magazine
The benchmark rate for more than $300 trillion of contracts was based on honesty. New evidence in banking's biggest scandal shows traders took it as a license to cheat. Graphic: Bloomberg MarketsEvery morning, from his desk by the bathroom at the far end of Royal Bank of Scotland Group Plc’s trading floor overlooking London’s Liverpool Street station, Paul White punched a series of numbers into his computer.
Enlarge image
Diamond Testifies in Libor Probe
Paul Thomas/Bloomberg
Former Barclays CEO Robert Diamond gave evidence to the Treasury Select Committee in London on July 10, 2012. Diamond stepped down from his position after regulators fined the bank 290 million pounds for attempting to rig the benchmark interest rate.
Former Barclays CEO Robert Diamond gave evidence to the Treasury Select Committee in London on July 10, 2012. Diamond stepped down from his position after regulators fined the bank 290 million pounds for attempting to rig the benchmark interest rate. Photographer: Paul Thomas/Bloomberg
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How Libor Was Rigged
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Gensler Began CFTC Investigation of Libor Manipulation
Peter Foley/Bloomberg
Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, started an investigation after listening to a tape of a conversation between traders and rate setters at Barclays.
Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, started an investigation after listening to a tape of a conversation between traders and rate setters at Barclays. Photographer: Peter Foley/Bloomberg
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London Lawyer Takes on Libor Banks
Harry Borden/ Bloomberg Markets
Stephen Rosen, an attorney at Collyer Bristow in London, represents a real estate company, three nursing homes and more than a dozen other firms that bought Libor-linked interest-rate swaps from banks.
Stephen Rosen, an attorney at Collyer Bristow in London, represents a real estate company, three nursing homes and more than a dozen other firms that bought Libor-linked interest-rate swaps from banks. Photographer: Harry Borden/ Bloomberg Markets
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Libor Score Card
White, who had joined RBS in 1984, was one of the employees responsible for the firm’s submissions for the London interbank offered rate, or Libor, the global benchmark for more than $300 trillion of contracts from mortgages and student loans to interest-rate swaps. Behind him sat Neil Danziger, a derivatives trader who had worked at the bank since 2002.
On the morning of March 27, 2008, Tan Chi Min, Danziger’s boss in Tokyo, told him to make sure the next day’s submission in yen would increase, Bloomberg Markets magazine will report in its March issue. “We need to bump it way up high, highest among all if possible,” Tan, who was known by colleagues as Jimmy, wrote in an instant message to Danziger, according to a transcript made public by a Singapore court and reported on by Bloomberg before being sealed by a judge at RBS’s request.
The next morning, RBS said it would have to pay 0.97 percent to borrow in yen for three months, up from 0.94 percent the previous day. The Edinburgh-based bank was the only one of 16 surveyed to raise its submission that day, inflating that day’s rate by one-fifth of a basis point, or 0.002 percent. On a $50 billion portfolio of interest-rate swaps, RBS could have gained as much as $250,000.
Events like those that took place on RBS’s trading floor, across the road from Bishopsgate police station and Dirty Dicks, a 267-year-old pub, are at the heart of what is emerging as the biggest and longest-running scandal in banking history. Even in an era of financial deception -- of firms peddling bad mortgages, hedge-fund managers trading on inside information and banks laundering money for drug cartels and terrorists -- the manipulation of Libor stands out for its breadth and audacity.
Details are only now revealing just how far-reaching the scam was.
“Pretty much anything you could do to increase the revenue of your organization appeared legitimate,” says Martin Taylor, chief executive officer of London-based Barclays Plc from 1994 to 1998. “Here was the market doing something blatantly dishonest. I never imagined that people in the financial markets were saints, but you expect some moral standards.”
Where Libor is set each day affects what families pay on their mortgages, the interest on savings accounts and returns on corporate bonds. Now, banks are facing a reckoning, as prosecutors make arrests, regulators impose fines and lawyers around the world file lawsuits claiming the manipulation pushed homeowners into poverty and deprived brokerage firms of profits.
For years, traders at Deutsche Bank AG, UBS AG, Barclays, RBS and other banks colluded with colleagues responsible for setting the benchmark and their counterparts at other firms to rig the price of money, according to documents obtained by Bloomberg and interviews with two dozen current and former traders, lawyers and regulators. UBS traders went as far as offering bribes to brokers to persuade others to make favorable submissions on their behalf, regulatory filings show.
Members of the close-knit group of traders knew each other from working at the same firms or going on trips organized by interdealer brokers, which line up buyers and sellers of securities, to French ski resort Chamonix and the Monaco Grand Prix. The manipulation flourished for years, even after bank supervisors were made aware of the system’s flaws.
“We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time,” says Adrian Blundell-Wignall, a special adviser to the secretary-general of the Organization for Economic Cooperation and Development in Paris. “Libor is the basis for calculating practically every derivative known to man.”
More than five years after alarms first sounded, regulators and prosecutors are closing in. UBS was fined a record $1.5 billion by U.S., U.K. and Swiss regulators in December for rigging global interest rates. Tom Hayes, 33, a former yen trader at the Zurich-based bank, was charged by the U.S. Justice Department on Dec. 20 with wire fraud and price fixing for colluding with brokers, contacts at other firms and his colleagues to manipulate Libor. Hayes hadn’t entered a plea as of mid-January, and his lawyers at Fulcrum Chambers in London declined to comment.
Barclays paid a 290 million pound ($464 million) fine in June to settle with regulators, and three top executives, including CEO Robert Diamond, departed. Other banks, including RBS, were negotiating settlements in early 2013, according to people with knowledge of the talks. RBS may pay as much as £500 million to settle allegations that traders tried to rig interest rates, two people with knowledge of the matter say. UBS and Barclays admitted wrongdoing as part of their settlement agreements. Spokesmen for the two banks, and for RBS, declined to comment.
The industry faces regulatory penalties of at least $8.7 billion, according to Morgan Stanley analysts. The European Union is leading a probe that could see banks fined as much as 10 percent of their annual revenue. Meanwhile, Libor is being overhauled after the U.K. government ordered a review in September into the way the benchmark is set.
The scandal demonstrates the failure of London’s two-decade experiment with light-touch supervision, which helped make the British capital the biggest securities-trading hub in the world. In his 10 years as chancellor of the Exchequer, from 1997 to 2007, Gordon Brown championed this approach, hailing a “golden age” for the City of London in a June 2007 speech. Brown, who later served as prime minister for three years, declined to comment.
Regulators have known since at least August 2007 that some banks were using artificially low Libor submissions to appear healthier than they were. That month, a Barclays employee in London e-mailed the Federal Reserve Bank of New York, questioning the numbers that other banks were inputting, according to transcripts published by the New York Fed. Nine months later, Tim Bond, then head of asset allocation at Barclays’s investment bank, publicly described Libor as “divorced from reality,” saying in a Bloomberg Television interview that firms were routinely misstating their borrowing costs to avoid the perception they were facing stress.
The New York Fed and the Bank of England say they didn’t act because they had no responsibility for oversight of Libor. That fell to the British Bankers’ Association, the industry lobbying group that created the rate in 1986 and largely ignored recommendations from central bankers after 2008 to change the way it was computed. Regulators also were preoccupied with the biggest financial crisis since the Great Depression, and forcing banks to be honest about their Libor submissions might have revealed they were paying penalty rates to borrow, which in turn would have further damaged public confidence.
Libor is calculated daily through a survey of banks asking how much it costs them to borrow in 10 currencies for periods ranging from overnight to one year. The top and bottom quartiles of quotes are excluded, and those left are averaged and made public before noon in London.
Because it’s based on estimates rather than actual trade data, the process relies on the honesty of participants. Instead of being truthful, derivatives traders sought to influence their own and other firms’ Libor submissions, with their managers sometimes condoning the practice, according to documents and transcripts of instant messages obtained by Bloomberg.
Occasionally, that meant offering financial inducements. “I need you to keep it as low as possible,” a UBS banker identified as Trader A wrote to an interdealer broker on Sept. 18, 2008, referring to six-month yen Libor, according to transcripts released on Dec. 19 by the U.K.’s Financial Services Authority.
“If you do that … I’ll pay you, you know, $50,000, $100,000 … whatever you want … I’m a man of my word.”
Some former regulators say they were surprised to learn about the scale of the cheating. “Through all of my experience, what I never contemplated was that there were bankers who would purposely misrepresent facts to banking authorities,” says Alan Greenspan, chairman of the U.S. Federal Reserve from 1987 to 2006. “You were honorbound to report accurately, and it never entered my mind that, aside from a fringe element, it would be otherwise. I was wrong.”
Sheila Bair, who served as acting chairman of the U.S. Commodity Futures Trading Commission in the 1990s and as chairman of the Federal Deposit Insurance Corp. from 2006 to 2011, says the scope of the scandal points to the flaws of light-touch regulation on both sides of the Atlantic. “When a bank can benefit financially from doing the wrong thing, it generally will,” Bair says. “The extent of the Libor manipulation was eye-popping.”
Libor debuted the same year that British Prime Minister Margaret Thatcher’s so-called Big Bang program of financial deregulation fueled a boom in London’s bond and syndicated-loan markets. The rate was designed as a simple benchmark that banks and borrowers could use to price loans.
In 1997, the Chicago Mercantile Exchange adopted the rate for pricing Eurodollar futures contracts, solidifying Libor’s position in the swaps market, which by June 2012 had a notional value of $639 trillion, according to the Bank for International Settlements. Swaps are contracts that allow borrowers to exchange a variable interest cost for a fixed one, protecting them against fluctuations in interest rates.
The CME decision created a temptation for swaps traders to game Libor, particularly in the days before international money market dates, when three-month Eurodollar futures settle. The value of positions was affected by where dollar Libor was set on the third Wednesdays of March, June, September and December. The manipulation of Libor was discussed openly at banks.
“We have an unbelievably large set on Monday,” one Barclays swaps trader in New York e-mailed the firm’s rate setter in London on March 10, 2006. “We need a really low three-month fix. It could potentially cost a fortune.” The rate setter complied with the request, according to the FSA, which published the e-mail following its investigation of the bank’s role in manipulating Libor.
The 2007 credit crunch increased the opportunity to cheat. With banks hoarding cash and not lending to one another, there was little trading in money markets, making it difficult for rate setters to assess borrowing costs accurately. Instead, traders say they resorted to seeking input from brokers, colleagues and acquaintances at other firms, many of whom stood to benefit from helping to push the rate in a particular direction.
On Aug. 20, 2007 -- days after BNP Paribas SA halted withdrawals from three of its funds, which marked the start of the credit crisis -- Paul Walker, RBS’s London-based head of money-markets trading, telephoned Scott Nygaard in Tokyo, where he was head of short-term markets for Asia. Walker, the person responsible for U.S.-dollar Libor submissions, wanted to talk about how banks were using the benchmark to benefit their trading positions.
“People are setting to where it suits their book,” Walker said, according to a transcript of the call obtained by Bloomberg. “Libor is what you say it is.”
"Yeah, yeah,” replied Nygaard, an American who had joined RBS in 2006 after six years at Deutsche Bank in Japan.
Walker and Nygaard, who’s now global head of treasury markets based in London and a member of the Bank of England’s money-markets liaison group, both declined to comment. It didn’t take a conspiracy involving large numbers of traders at different firms to move the rate. By nudging their submissions up or down, traders at a single bank could influence where Libor was fixed. Even inputting a rate too high to be included could push up the final figure by sending a previously excluded entry back into the pack.
“If you have a system like Libor, where highly subjective quotes are built into the process, you have a lot of opportunity for manipulation,” says Andrew Verstein, a lecturer at Yale Law School in New Haven, Connecticut, and co-author of a paper on Libor rigging published in the Winter 2013 issue of the Yale Journal on Regulation. “You don’t need a cartel to make Libor manipulation work for you.”
Rate setters at JPMorgan Chase & Co., Rabobank Groep, Barclays, Deutsche Bank, RBS and UBS were given no training or guidelines for making submissions, according to former employees who asked not to be identified because investigations are continuing. At RBS and Frankfurt-based Deutsche Bank, derivatives traders on occasion made their firm’s submissions, they say. Spokesmen for all of the banks declined to comment. Anshu Jain, co-CEO of Deutsche Bank and head of its investment bank at the time, told investors at a panel discussion in Germany on Jan. 21 that rigging Libor “sickens me the most of all the scandals.”
As the credit crisis intensified in the fourth quarter of 2007, Libor was a closely scrutinized gauge of the health of financial firms. After years of relative stability, the benchmark became more volatile. The average spread between the highest and lowest submissions to the three-month dollar rate widened to about 8 basis points in the three months ended on Oct. 30, 2007, from about 1 basis point in the previous three months, data compiled by Bloomberg show.
The volatility drew the attention of some bankers. On Aug. 28, 2007, Fabiola Ravazzolo, an economist on the financial-stability team at the New York Fed, received an e-mail from a member of Barclays’s money-markets desk in London accusing the firm’s competitors of making artificially low Libor submissions, according to transcripts published by the regulator that didn’t identify the sender. Barclays that day had submitted the highest rate to three-month dollar Libor, while the lowest was posted by London-based Lloyds TSB Group Plc, suggesting Barclays was having more difficulty obtaining funding than Lloyds, a bank later bailed out by the U.K. government and now known as Lloyds Banking Group Plc.
“Today’s U.S.-dollar Libors have come out, and they look too low to me,” the e-mail from the Barclays employee said. “Draw your own conclusions about why people are going for unrealistically low Libors.”
Lloyds, in an e-mailed statement, declined to comment on what it called “speculation by traders at other banks.” It wasn’t until the following year, prompted by a March 2008 report by the Bank for International Settlements and an April article in the Wall Street Journal suggesting banks were low-balling their submissions, that the New York Fed and the Bank of England asked the BBA to review the rate-setting process.
In June 2008, New York Fed President Timothy F. Geithner sent a memo to Bank of England Governor Mervyn King and his deputy, Paul Tucker, putting forward a list of recommendations for improving Libor, including increasing the number of banks that submit rates, basing the rate on an average of randomly selected submissions and cutting maturities in which little or no trading took place.
Aside from creating a committee to review questionable submissions and promising to increase the number of contributors to dollar Libor, the BBA didn’t implement Geithner’s suggestions. Angela Knight, then the group’s CEO, said in a December 2008 statement that Libor could be trusted as “a reliable benchmark.”
Privately, regulators were skeptical. As the BBA was drafting its proposals, King wrote to colleagues including Tucker on May 31, 2008, describing the group’s response as “wholly inadequate,” according to documents released by the Bank of England in July. Rather than press the BBA to change the way Libor was set, the Bank of England, the FSA and the New York Fed demanded that any references to their institutions be removed from the BBA review, the e-mails show.
A spokesman for the Bank of England says Britain’s central bank “had no supervisory responsibilities” for Libor at the time. The New York Fed also “lacked direct authority over Libor” and didn’t want to be seen endorsing a private association’s plan, according to Jack Gutt, a spokesman. The New York Fed continued to press for reform through 2008, he says.
Liam Parker, an FSA spokesman, referred to earlier comments Adair Turner, chairman of that agency, made to British lawmakers in July that the regulator was in contact with the CFTC in Washington at a “very early stage” in an investigation the U.S. agency began in 2008. The BBA said in an e-mail that it’s working with regulators “to ensure the provision of a reliable benchmark which has the confidence and support of all users.”
By failing to act, regulators allowed rate rigging to continue over the next two years. At RBS, the abuse was most pronounced from 2008 until late 2010, according to people close to the bank’s internal probe. At Barclays, manipulation continued until the second half of 2009. Japan’s Financial Services Agency banned Citigroup Inc. from trading derivatives linked to Libor and Tibor, the Tokyo interbank offered rate, for two weeks in January as punishment for wrongdoing that started in December 2009.
Former Barclays Chief Operating Officer Jerry Del Missier went further, saying that the Bank of England encouraged the lender to suppress Libor submissions. In October 2008, days before RBS and Lloyds sought bailouts, the central bank asked Barclays to lower its quotes because they were stoking concern about the bank’s stability, Del Missier told a panel of British lawmakers on July 16. Tucker, the Bank of England deputy director, told the panel he never gave such instructions.
“It’s not adequate for the authorities to say, ‘We didn’t have responsibility,’” says Paul Myners, a Labour Party member in Parliament’s House of Lords and a U.K. Treasury minister from 2008 to 2010. “It was a huge oversight by the regulators not to realize that Libor and other benchmarks were of such critical importance that they should fall within the regulatory ambit.”
In the end, it was a U.S. regulator without any banking oversight that took action. Vincent McGonagle, a top enforcement official at the CFTC in Washington, initiated a probe into Libor after reading the April 2008 Wall Street Journal story. The agency sent letters to several banks that year requesting information, according to a person with knowledge of the investigation. The commission decided it had the authority to act because Libor affects the price of futures contracts that trade on the CME.
Banks opened their own investigations after the CFTC inquiries. Barclays appointed Rich Ricci, then co-head of its investment bank, to oversee an inquiry. As his team sifted through thousands of pages of e-mails and transcripts of instant messages and phone conversations, it uncovered evidence that traders were manipulating the rate both up and down for profit, according to two people with knowledge of the probe.
The CFTC came to the same conclusion in late 2009 or early 2010, according to the person with knowledge of the commission’s inquiry. It happened when Gary Gensler, chairman for less than a year, stood in the foyer of his ninth-floor Washington office as Stephen Obie, acting head of enforcement at the time, played a Barclays tape of a conversation between traders and rate setters, the person said. “We had to vigorously pursue this,” Gensler says. “Sometimes practice in a market gets confused and over the line, but nonetheless it may still be illegal.”
The investigations revealed how widespread the manipulation was. At UBS, traders made about 2,000 written requests for movements in rates from late 2006 to late 2009. The majority were sent by Hayes, the Tokyo-based trader who led a “massive effort” to rig yen Libor, the CFTC said in a settlement with the bank in December. Hayes also bribed brokers to disseminate his requests to other panel banks and, on occasion, persuaded them to lie about where Libor should fix that day, the Department of Justice said. Hayes, who traded “enormous volumes” in yen swaps, made about $260 million in revenue for UBS during the three years he worked there, the CFTC said.
At Barclays, derivatives traders made 257 requests for U.S.-dollar Libor, yen Libor and euro interbank offered rate, or Euribor, submissions from January 2005 to June 2009, according to the settlement between the bank and regulators. The requests for U.S.-dollar Libor were granted about 70 percent of the time.
Manipulating Libor was a common practice in an unregulated market big enough to span the world though small enough for most participants to know one another personally, investigators found. Traders who worked 12-hour days without a lunch break were entertained by brokers soliciting business, according to three people familiar with the outings.
In March 2007, five months before the onset of the credit crisis, a dozen traders from Lehman Brothers Holdings Inc., Deutsche Bank, JPMorgan and other firms traveled to Chamonix, according to people with knowledge of the outing. The group, traders of yen-based derivatives, spent a day skiing before gathering over mulled wine at a restaurant. They flew back late on Sunday, in time for a 6 a.m. start the next day.
The trip was organized by London-based ICAP Plc, the world’s biggest interdealer broker. Brokers such as ICAP and RP Martin Holdings Ltd., also in London, were sounding boards for those trying to set rates, especially after money markets dried up, traders interviewed by Bloomberg say.
ICAP said in May that it had received requests from government agencies probing banks’ Libor submissions and is cooperating fully. The firm said it had suspended one employee and placed three others on paid leave pending the outcome of the investigation. Two RP Martin brokers were arrested in London on Dec. 11 as part of an inquiry into Libor rigging. Brigitte Trafford, an ICAP spokeswoman, declined to comment, as did RP Martin spokesman Jeremy Carey.
RBS in 2011 dismissed Tan, Danziger and White, the rate setter, following the bank’s probe into yen Libor known as Project Zen. Tan sued the bank for wrongful dismissal in Singapore in 2011, and the case is still before the court. Andy Hamilton, who traded derivatives tied to the Swiss franc, also was fired for trying to influence Libor. The bank has suspended at least three others, including Jezri Mohideen, head of rates trading for Europe and the Asia-Pacific region, according to a person with knowledge of the probe. White, Tan, Danziger and Hamilton declined to comment. Mohideen said in a statement issued by his lawyer that he never sought “to exert pressure on anyone to submit inaccurate rates.”
Deutsche Bank has dismissed two individuals, including Christian Bittar, head of money-markets derivatives trading, three people familiar with the bank’s internal investigation said. Barclays has disciplined 13 employees and dismissed five, Ricci, now head of corporate and investment banking, told British lawmakers on Nov. 28. At least 45 employees, including managers, knew of the “pervasive” practices at UBS, the FSA said. More than 25 left the Swiss bank following an internal probe, a person with knowledge of the investigation said in November.
The Barclays settlement prompted the U.K. government to order an inquiry into Libor. The report, published in September, recommended stripping the BBA of its oversight role, handing it to the Bank of England and introducing criminal sanctions for traders seeking to rig the rate. “Governance of Libor has completely failed,” FSA Managing Director Martin Wheatley, who led the review, said when he released the report. “This problem has been exacerbated by a lack of regulation and a comprehensive mechanism to punish those who manipulate the system.”
The ubiquity of contracts pegged to Libor leaves banks vulnerable to lawsuits. Barclays was ordered by a British judge in November to release the names of individuals involved in rigging rates after Guardian Care Homes Ltd., a Wolverhampton, England–based owner of about 30 homes for the elderly, sued for £38 million over interest-rate swaps that lost it money.
In Alabama, mortgage holders have filed a class action in federal court alleging that 12 banks colluded to push Libor higher on the dates when repayments are set. The plaintiffs include Annie Bell Adams, a pensioner whose home was repossessed, and Dennis Fobes, a 59-year-old salesman of janitorial supplies whose house in Mobile is now worth less than his mortgage. He says he refinanced in 2006 with a $360,000 adjustable-rate mortgage linked to six-month dollar Libor. “It’s just another example of how the banks have manipulated everything in their power,” Fobes says. “I will fight them to the day I die to save my home.”
The city of Baltimore and Charles Schwab Corp., the largest independent brokerage by client assets, have filed suits claiming banks colluded to keep Libor artificially low, depriving them of fair returns. At least 30 such cases are pending in federal court in New York.
In London, lawyers at Collyer Bristow LLP, a 252-year-old firm, are working on a plan that would force banks to reimburse customers for any payments made under contracts pegged to Libor. Stephen Rosen, who runs the firm, says clients who entered into interest-rate swaps with banks may be entitled to cancel those contracts because manipulation was so entrenched -- at a cost of hundreds of billions of dollars.
“It’s possible on legal grounds to set aside the swap contract entirely, which could mean you can recover all the payments you’ve made under the swap,” says Rosen, who wears thick-rimmed glasses and speaks in clipped, precise tones, sitting in his office in a Georgian townhouse in the legal district of Gray’s Inn. “The bank, when they entered into the swap, made an implied representation that Libor would not be unfairly manipulated.”
Rosen says his clients include a publicly traded real estate company, three nursing homes and at least 12 more firms that bought Libor-linked interest-rate swaps from banks. He declines to identify them by name, citing confidentiality rules. “The client will argue, ‘Had you told me the truth -- that you were fraudulently manipulating this rate -- I would never have entered the contract with you,’” he says. “We are calling this the nuclear option.”
To contact the reporters on this story: Liam Vaughan in London at lvaughan6@bloomberg.net and Gavin Finch in London at gfinch@bloomberg.net.
With assistance from Silla Brush in Washington, Andrea Tan in Singapore and Francine Lacqua, Lindsay Fortado and Jesse Westbrook in London.
By Liam Vaughan & Gavin Finch - Jan 28, 2013 9:54 PM GMT
Bloomberg Markets Magazine
The benchmark rate for more than $300 trillion of contracts was based on honesty. New evidence in banking's biggest scandal shows traders took it as a license to cheat. Graphic: Bloomberg MarketsEvery morning, from his desk by the bathroom at the far end of Royal Bank of Scotland Group Plc’s trading floor overlooking London’s Liverpool Street station, Paul White punched a series of numbers into his computer.
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Diamond Testifies in Libor Probe
Paul Thomas/Bloomberg
Former Barclays CEO Robert Diamond gave evidence to the Treasury Select Committee in London on July 10, 2012. Diamond stepped down from his position after regulators fined the bank 290 million pounds for attempting to rig the benchmark interest rate.
Former Barclays CEO Robert Diamond gave evidence to the Treasury Select Committee in London on July 10, 2012. Diamond stepped down from his position after regulators fined the bank 290 million pounds for attempting to rig the benchmark interest rate. Photographer: Paul Thomas/Bloomberg
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How Libor Was Rigged
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Gensler Began CFTC Investigation of Libor Manipulation
Peter Foley/Bloomberg
Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, started an investigation after listening to a tape of a conversation between traders and rate setters at Barclays.
Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, started an investigation after listening to a tape of a conversation between traders and rate setters at Barclays. Photographer: Peter Foley/Bloomberg
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London Lawyer Takes on Libor Banks
Harry Borden/ Bloomberg Markets
Stephen Rosen, an attorney at Collyer Bristow in London, represents a real estate company, three nursing homes and more than a dozen other firms that bought Libor-linked interest-rate swaps from banks.
Stephen Rosen, an attorney at Collyer Bristow in London, represents a real estate company, three nursing homes and more than a dozen other firms that bought Libor-linked interest-rate swaps from banks. Photographer: Harry Borden/ Bloomberg Markets
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Libor Score Card
White, who had joined RBS in 1984, was one of the employees responsible for the firm’s submissions for the London interbank offered rate, or Libor, the global benchmark for more than $300 trillion of contracts from mortgages and student loans to interest-rate swaps. Behind him sat Neil Danziger, a derivatives trader who had worked at the bank since 2002.
On the morning of March 27, 2008, Tan Chi Min, Danziger’s boss in Tokyo, told him to make sure the next day’s submission in yen would increase, Bloomberg Markets magazine will report in its March issue. “We need to bump it way up high, highest among all if possible,” Tan, who was known by colleagues as Jimmy, wrote in an instant message to Danziger, according to a transcript made public by a Singapore court and reported on by Bloomberg before being sealed by a judge at RBS’s request.
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The next morning, RBS said it would have to pay 0.97 percent to borrow in yen for three months, up from 0.94 percent the previous day. The Edinburgh-based bank was the only one of 16 surveyed to raise its submission that day, inflating that day’s rate by one-fifth of a basis point, or 0.002 percent. On a $50 billion portfolio of interest-rate swaps, RBS could have gained as much as $250,000.
Events like those that took place on RBS’s trading floor, across the road from Bishopsgate police station and Dirty Dicks, a 267-year-old pub, are at the heart of what is emerging as the biggest and longest-running scandal in banking history. Even in an era of financial deception -- of firms peddling bad mortgages, hedge-fund managers trading on inside information and banks laundering money for drug cartels and terrorists -- the manipulation of Libor stands out for its breadth and audacity.
Details are only now revealing just how far-reaching the scam was.
“Pretty much anything you could do to increase the revenue of your organization appeared legitimate,” says Martin Taylor, chief executive officer of London-based Barclays Plc from 1994 to 1998. “Here was the market doing something blatantly dishonest. I never imagined that people in the financial markets were saints, but you expect some moral standards.”
Where Libor is set each day affects what families pay on their mortgages, the interest on savings accounts and returns on corporate bonds. Now, banks are facing a reckoning, as prosecutors make arrests, regulators impose fines and lawyers around the world file lawsuits claiming the manipulation pushed homeowners into poverty and deprived brokerage firms of profits.
For years, traders at Deutsche Bank AG, UBS AG, Barclays, RBS and other banks colluded with colleagues responsible for setting the benchmark and their counterparts at other firms to rig the price of money, according to documents obtained by Bloomberg and interviews with two dozen current and former traders, lawyers and regulators. UBS traders went as far as offering bribes to brokers to persuade others to make favorable submissions on their behalf, regulatory filings show.
Members of the close-knit group of traders knew each other from working at the same firms or going on trips organized by interdealer brokers, which line up buyers and sellers of securities, to French ski resort Chamonix and the Monaco Grand Prix. The manipulation flourished for years, even after bank supervisors were made aware of the system’s flaws.
“We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time,” says Adrian Blundell-Wignall, a special adviser to the secretary-general of the Organization for Economic Cooperation and Development in Paris. “Libor is the basis for calculating practically every derivative known to man.”
More than five years after alarms first sounded, regulators and prosecutors are closing in. UBS was fined a record $1.5 billion by U.S., U.K. and Swiss regulators in December for rigging global interest rates. Tom Hayes, 33, a former yen trader at the Zurich-based bank, was charged by the U.S. Justice Department on Dec. 20 with wire fraud and price fixing for colluding with brokers, contacts at other firms and his colleagues to manipulate Libor. Hayes hadn’t entered a plea as of mid-January, and his lawyers at Fulcrum Chambers in London declined to comment.
Barclays paid a 290 million pound ($464 million) fine in June to settle with regulators, and three top executives, including CEO Robert Diamond, departed. Other banks, including RBS, were negotiating settlements in early 2013, according to people with knowledge of the talks. RBS may pay as much as £500 million to settle allegations that traders tried to rig interest rates, two people with knowledge of the matter say. UBS and Barclays admitted wrongdoing as part of their settlement agreements. Spokesmen for the two banks, and for RBS, declined to comment.
The industry faces regulatory penalties of at least $8.7 billion, according to Morgan Stanley analysts. The European Union is leading a probe that could see banks fined as much as 10 percent of their annual revenue. Meanwhile, Libor is being overhauled after the U.K. government ordered a review in September into the way the benchmark is set.
The scandal demonstrates the failure of London’s two-decade experiment with light-touch supervision, which helped make the British capital the biggest securities-trading hub in the world. In his 10 years as chancellor of the Exchequer, from 1997 to 2007, Gordon Brown championed this approach, hailing a “golden age” for the City of London in a June 2007 speech. Brown, who later served as prime minister for three years, declined to comment.
Regulators have known since at least August 2007 that some banks were using artificially low Libor submissions to appear healthier than they were. That month, a Barclays employee in London e-mailed the Federal Reserve Bank of New York, questioning the numbers that other banks were inputting, according to transcripts published by the New York Fed. Nine months later, Tim Bond, then head of asset allocation at Barclays’s investment bank, publicly described Libor as “divorced from reality,” saying in a Bloomberg Television interview that firms were routinely misstating their borrowing costs to avoid the perception they were facing stress.
The New York Fed and the Bank of England say they didn’t act because they had no responsibility for oversight of Libor. That fell to the British Bankers’ Association, the industry lobbying group that created the rate in 1986 and largely ignored recommendations from central bankers after 2008 to change the way it was computed. Regulators also were preoccupied with the biggest financial crisis since the Great Depression, and forcing banks to be honest about their Libor submissions might have revealed they were paying penalty rates to borrow, which in turn would have further damaged public confidence.
Libor is calculated daily through a survey of banks asking how much it costs them to borrow in 10 currencies for periods ranging from overnight to one year. The top and bottom quartiles of quotes are excluded, and those left are averaged and made public before noon in London.
Because it’s based on estimates rather than actual trade data, the process relies on the honesty of participants. Instead of being truthful, derivatives traders sought to influence their own and other firms’ Libor submissions, with their managers sometimes condoning the practice, according to documents and transcripts of instant messages obtained by Bloomberg.
Occasionally, that meant offering financial inducements. “I need you to keep it as low as possible,” a UBS banker identified as Trader A wrote to an interdealer broker on Sept. 18, 2008, referring to six-month yen Libor, according to transcripts released on Dec. 19 by the U.K.’s Financial Services Authority.
“If you do that … I’ll pay you, you know, $50,000, $100,000 … whatever you want … I’m a man of my word.”
Some former regulators say they were surprised to learn about the scale of the cheating. “Through all of my experience, what I never contemplated was that there were bankers who would purposely misrepresent facts to banking authorities,” says Alan Greenspan, chairman of the U.S. Federal Reserve from 1987 to 2006. “You were honorbound to report accurately, and it never entered my mind that, aside from a fringe element, it would be otherwise. I was wrong.”
Sheila Bair, who served as acting chairman of the U.S. Commodity Futures Trading Commission in the 1990s and as chairman of the Federal Deposit Insurance Corp. from 2006 to 2011, says the scope of the scandal points to the flaws of light-touch regulation on both sides of the Atlantic. “When a bank can benefit financially from doing the wrong thing, it generally will,” Bair says. “The extent of the Libor manipulation was eye-popping.”
Libor debuted the same year that British Prime Minister Margaret Thatcher’s so-called Big Bang program of financial deregulation fueled a boom in London’s bond and syndicated-loan markets. The rate was designed as a simple benchmark that banks and borrowers could use to price loans.
In 1997, the Chicago Mercantile Exchange adopted the rate for pricing Eurodollar futures contracts, solidifying Libor’s position in the swaps market, which by June 2012 had a notional value of $639 trillion, according to the Bank for International Settlements. Swaps are contracts that allow borrowers to exchange a variable interest cost for a fixed one, protecting them against fluctuations in interest rates.
The CME decision created a temptation for swaps traders to game Libor, particularly in the days before international money market dates, when three-month Eurodollar futures settle. The value of positions was affected by where dollar Libor was set on the third Wednesdays of March, June, September and December. The manipulation of Libor was discussed openly at banks.
“We have an unbelievably large set on Monday,” one Barclays swaps trader in New York e-mailed the firm’s rate setter in London on March 10, 2006. “We need a really low three-month fix. It could potentially cost a fortune.” The rate setter complied with the request, according to the FSA, which published the e-mail following its investigation of the bank’s role in manipulating Libor.
The 2007 credit crunch increased the opportunity to cheat. With banks hoarding cash and not lending to one another, there was little trading in money markets, making it difficult for rate setters to assess borrowing costs accurately. Instead, traders say they resorted to seeking input from brokers, colleagues and acquaintances at other firms, many of whom stood to benefit from helping to push the rate in a particular direction.
On Aug. 20, 2007 -- days after BNP Paribas SA halted withdrawals from three of its funds, which marked the start of the credit crisis -- Paul Walker, RBS’s London-based head of money-markets trading, telephoned Scott Nygaard in Tokyo, where he was head of short-term markets for Asia. Walker, the person responsible for U.S.-dollar Libor submissions, wanted to talk about how banks were using the benchmark to benefit their trading positions.
“People are setting to where it suits their book,” Walker said, according to a transcript of the call obtained by Bloomberg. “Libor is what you say it is.”
"Yeah, yeah,” replied Nygaard, an American who had joined RBS in 2006 after six years at Deutsche Bank in Japan.
Walker and Nygaard, who’s now global head of treasury markets based in London and a member of the Bank of England’s money-markets liaison group, both declined to comment. It didn’t take a conspiracy involving large numbers of traders at different firms to move the rate. By nudging their submissions up or down, traders at a single bank could influence where Libor was fixed. Even inputting a rate too high to be included could push up the final figure by sending a previously excluded entry back into the pack.
“If you have a system like Libor, where highly subjective quotes are built into the process, you have a lot of opportunity for manipulation,” says Andrew Verstein, a lecturer at Yale Law School in New Haven, Connecticut, and co-author of a paper on Libor rigging published in the Winter 2013 issue of the Yale Journal on Regulation. “You don’t need a cartel to make Libor manipulation work for you.”
Rate setters at JPMorgan Chase & Co., Rabobank Groep, Barclays, Deutsche Bank, RBS and UBS were given no training or guidelines for making submissions, according to former employees who asked not to be identified because investigations are continuing. At RBS and Frankfurt-based Deutsche Bank, derivatives traders on occasion made their firm’s submissions, they say. Spokesmen for all of the banks declined to comment. Anshu Jain, co-CEO of Deutsche Bank and head of its investment bank at the time, told investors at a panel discussion in Germany on Jan. 21 that rigging Libor “sickens me the most of all the scandals.”
As the credit crisis intensified in the fourth quarter of 2007, Libor was a closely scrutinized gauge of the health of financial firms. After years of relative stability, the benchmark became more volatile. The average spread between the highest and lowest submissions to the three-month dollar rate widened to about 8 basis points in the three months ended on Oct. 30, 2007, from about 1 basis point in the previous three months, data compiled by Bloomberg show.
The volatility drew the attention of some bankers. On Aug. 28, 2007, Fabiola Ravazzolo, an economist on the financial-stability team at the New York Fed, received an e-mail from a member of Barclays’s money-markets desk in London accusing the firm’s competitors of making artificially low Libor submissions, according to transcripts published by the regulator that didn’t identify the sender. Barclays that day had submitted the highest rate to three-month dollar Libor, while the lowest was posted by London-based Lloyds TSB Group Plc, suggesting Barclays was having more difficulty obtaining funding than Lloyds, a bank later bailed out by the U.K. government and now known as Lloyds Banking Group Plc.
“Today’s U.S.-dollar Libors have come out, and they look too low to me,” the e-mail from the Barclays employee said. “Draw your own conclusions about why people are going for unrealistically low Libors.”
Lloyds, in an e-mailed statement, declined to comment on what it called “speculation by traders at other banks.” It wasn’t until the following year, prompted by a March 2008 report by the Bank for International Settlements and an April article in the Wall Street Journal suggesting banks were low-balling their submissions, that the New York Fed and the Bank of England asked the BBA to review the rate-setting process.
In June 2008, New York Fed President Timothy F. Geithner sent a memo to Bank of England Governor Mervyn King and his deputy, Paul Tucker, putting forward a list of recommendations for improving Libor, including increasing the number of banks that submit rates, basing the rate on an average of randomly selected submissions and cutting maturities in which little or no trading took place.
Aside from creating a committee to review questionable submissions and promising to increase the number of contributors to dollar Libor, the BBA didn’t implement Geithner’s suggestions. Angela Knight, then the group’s CEO, said in a December 2008 statement that Libor could be trusted as “a reliable benchmark.”
Privately, regulators were skeptical. As the BBA was drafting its proposals, King wrote to colleagues including Tucker on May 31, 2008, describing the group’s response as “wholly inadequate,” according to documents released by the Bank of England in July. Rather than press the BBA to change the way Libor was set, the Bank of England, the FSA and the New York Fed demanded that any references to their institutions be removed from the BBA review, the e-mails show.
A spokesman for the Bank of England says Britain’s central bank “had no supervisory responsibilities” for Libor at the time. The New York Fed also “lacked direct authority over Libor” and didn’t want to be seen endorsing a private association’s plan, according to Jack Gutt, a spokesman. The New York Fed continued to press for reform through 2008, he says.
Liam Parker, an FSA spokesman, referred to earlier comments Adair Turner, chairman of that agency, made to British lawmakers in July that the regulator was in contact with the CFTC in Washington at a “very early stage” in an investigation the U.S. agency began in 2008. The BBA said in an e-mail that it’s working with regulators “to ensure the provision of a reliable benchmark which has the confidence and support of all users.”
By failing to act, regulators allowed rate rigging to continue over the next two years. At RBS, the abuse was most pronounced from 2008 until late 2010, according to people close to the bank’s internal probe. At Barclays, manipulation continued until the second half of 2009. Japan’s Financial Services Agency banned Citigroup Inc. from trading derivatives linked to Libor and Tibor, the Tokyo interbank offered rate, for two weeks in January as punishment for wrongdoing that started in December 2009.
Former Barclays Chief Operating Officer Jerry Del Missier went further, saying that the Bank of England encouraged the lender to suppress Libor submissions. In October 2008, days before RBS and Lloyds sought bailouts, the central bank asked Barclays to lower its quotes because they were stoking concern about the bank’s stability, Del Missier told a panel of British lawmakers on July 16. Tucker, the Bank of England deputy director, told the panel he never gave such instructions.
“It’s not adequate for the authorities to say, ‘We didn’t have responsibility,’” says Paul Myners, a Labour Party member in Parliament’s House of Lords and a U.K. Treasury minister from 2008 to 2010. “It was a huge oversight by the regulators not to realize that Libor and other benchmarks were of such critical importance that they should fall within the regulatory ambit.”
In the end, it was a U.S. regulator without any banking oversight that took action. Vincent McGonagle, a top enforcement official at the CFTC in Washington, initiated a probe into Libor after reading the April 2008 Wall Street Journal story. The agency sent letters to several banks that year requesting information, according to a person with knowledge of the investigation. The commission decided it had the authority to act because Libor affects the price of futures contracts that trade on the CME.
Banks opened their own investigations after the CFTC inquiries. Barclays appointed Rich Ricci, then co-head of its investment bank, to oversee an inquiry. As his team sifted through thousands of pages of e-mails and transcripts of instant messages and phone conversations, it uncovered evidence that traders were manipulating the rate both up and down for profit, according to two people with knowledge of the probe.
The CFTC came to the same conclusion in late 2009 or early 2010, according to the person with knowledge of the commission’s inquiry. It happened when Gary Gensler, chairman for less than a year, stood in the foyer of his ninth-floor Washington office as Stephen Obie, acting head of enforcement at the time, played a Barclays tape of a conversation between traders and rate setters, the person said. “We had to vigorously pursue this,” Gensler says. “Sometimes practice in a market gets confused and over the line, but nonetheless it may still be illegal.”
The investigations revealed how widespread the manipulation was. At UBS, traders made about 2,000 written requests for movements in rates from late 2006 to late 2009. The majority were sent by Hayes, the Tokyo-based trader who led a “massive effort” to rig yen Libor, the CFTC said in a settlement with the bank in December. Hayes also bribed brokers to disseminate his requests to other panel banks and, on occasion, persuaded them to lie about where Libor should fix that day, the Department of Justice said. Hayes, who traded “enormous volumes” in yen swaps, made about $260 million in revenue for UBS during the three years he worked there, the CFTC said.
At Barclays, derivatives traders made 257 requests for U.S.-dollar Libor, yen Libor and euro interbank offered rate, or Euribor, submissions from January 2005 to June 2009, according to the settlement between the bank and regulators. The requests for U.S.-dollar Libor were granted about 70 percent of the time.
Manipulating Libor was a common practice in an unregulated market big enough to span the world though small enough for most participants to know one another personally, investigators found. Traders who worked 12-hour days without a lunch break were entertained by brokers soliciting business, according to three people familiar with the outings.
In March 2007, five months before the onset of the credit crisis, a dozen traders from Lehman Brothers Holdings Inc., Deutsche Bank, JPMorgan and other firms traveled to Chamonix, according to people with knowledge of the outing. The group, traders of yen-based derivatives, spent a day skiing before gathering over mulled wine at a restaurant. They flew back late on Sunday, in time for a 6 a.m. start the next day.
The trip was organized by London-based ICAP Plc, the world’s biggest interdealer broker. Brokers such as ICAP and RP Martin Holdings Ltd., also in London, were sounding boards for those trying to set rates, especially after money markets dried up, traders interviewed by Bloomberg say.
ICAP said in May that it had received requests from government agencies probing banks’ Libor submissions and is cooperating fully. The firm said it had suspended one employee and placed three others on paid leave pending the outcome of the investigation. Two RP Martin brokers were arrested in London on Dec. 11 as part of an inquiry into Libor rigging. Brigitte Trafford, an ICAP spokeswoman, declined to comment, as did RP Martin spokesman Jeremy Carey.
RBS in 2011 dismissed Tan, Danziger and White, the rate setter, following the bank’s probe into yen Libor known as Project Zen. Tan sued the bank for wrongful dismissal in Singapore in 2011, and the case is still before the court. Andy Hamilton, who traded derivatives tied to the Swiss franc, also was fired for trying to influence Libor. The bank has suspended at least three others, including Jezri Mohideen, head of rates trading for Europe and the Asia-Pacific region, according to a person with knowledge of the probe. White, Tan, Danziger and Hamilton declined to comment. Mohideen said in a statement issued by his lawyer that he never sought “to exert pressure on anyone to submit inaccurate rates.”
Deutsche Bank has dismissed two individuals, including Christian Bittar, head of money-markets derivatives trading, three people familiar with the bank’s internal investigation said. Barclays has disciplined 13 employees and dismissed five, Ricci, now head of corporate and investment banking, told British lawmakers on Nov. 28. At least 45 employees, including managers, knew of the “pervasive” practices at UBS, the FSA said. More than 25 left the Swiss bank following an internal probe, a person with knowledge of the investigation said in November.
The Barclays settlement prompted the U.K. government to order an inquiry into Libor. The report, published in September, recommended stripping the BBA of its oversight role, handing it to the Bank of England and introducing criminal sanctions for traders seeking to rig the rate. “Governance of Libor has completely failed,” FSA Managing Director Martin Wheatley, who led the review, said when he released the report. “This problem has been exacerbated by a lack of regulation and a comprehensive mechanism to punish those who manipulate the system.”
The ubiquity of contracts pegged to Libor leaves banks vulnerable to lawsuits. Barclays was ordered by a British judge in November to release the names of individuals involved in rigging rates after Guardian Care Homes Ltd., a Wolverhampton, England–based owner of about 30 homes for the elderly, sued for £38 million over interest-rate swaps that lost it money.
In Alabama, mortgage holders have filed a class action in federal court alleging that 12 banks colluded to push Libor higher on the dates when repayments are set. The plaintiffs include Annie Bell Adams, a pensioner whose home was repossessed, and Dennis Fobes, a 59-year-old salesman of janitorial supplies whose house in Mobile is now worth less than his mortgage. He says he refinanced in 2006 with a $360,000 adjustable-rate mortgage linked to six-month dollar Libor. “It’s just another example of how the banks have manipulated everything in their power,” Fobes says. “I will fight them to the day I die to save my home.”
The city of Baltimore and Charles Schwab Corp., the largest independent brokerage by client assets, have filed suits claiming banks colluded to keep Libor artificially low, depriving them of fair returns. At least 30 such cases are pending in federal court in New York.
In London, lawyers at Collyer Bristow LLP, a 252-year-old firm, are working on a plan that would force banks to reimburse customers for any payments made under contracts pegged to Libor. Stephen Rosen, who runs the firm, says clients who entered into interest-rate swaps with banks may be entitled to cancel those contracts because manipulation was so entrenched -- at a cost of hundreds of billions of dollars.
“It’s possible on legal grounds to set aside the swap contract entirely, which could mean you can recover all the payments you’ve made under the swap,” says Rosen, who wears thick-rimmed glasses and speaks in clipped, precise tones, sitting in his office in a Georgian townhouse in the legal district of Gray’s Inn. “The bank, when they entered into the swap, made an implied representation that Libor would not be unfairly manipulated.”
Rosen says his clients include a publicly traded real estate company, three nursing homes and at least 12 more firms that bought Libor-linked interest-rate swaps from banks. He declines to identify them by name, citing confidentiality rules. “The client will argue, ‘Had you told me the truth -- that you were fraudulently manipulating this rate -- I would never have entered the contract with you,’” he says. “We are calling this the nuclear option.”
To contact the reporters on this story: Liam Vaughan in London at lvaughan6@bloomberg.net and Gavin Finch in London at gfinch@bloomberg.net.
With assistance from Silla Brush in Washington, Andrea Tan in Singapore and Francine Lacqua, Lindsay Fortado and Jesse Westbrook in London.
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