The London Interbank Offered Rate (Libor) became a cornerstone of the global financial system’s lending markets. As its death nears, it’s becoming increasingly apparent smaller businesses will bear the brunt of the pain.
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Pegging is naturally centralised.
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Barclays views it as imperative that the market has access to Benchmarks that are well constructed, transparent and that inspire the confidence of other market participants and regulators… You can say that again. Some (more) Libor reading landed this week — the responses from banks, and other cogs and gears of the market, to a recent report by Iosco about reforming financial benchmarks. Everyone from Thomson Reuters to the European Central Bank, Blackrock to Calpers, has weighed in here.
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Bob Diamond, John Varley, Jerry del Missier, Chris Lucas, Rich Ricci, and the Honourable Mr Justice Flaux
Quite a victory for open justice on Thursday — senior Barclays bankers involved in the first major test litigation over Libor will be publicly named in court after all, after a High Court judge threw out their application for anonymity. Full FT story here. (The FT joined other media organisations in challenging the anonymity.)
Click to enlarge: It’s the product of all those Select Committee hearings, including appearances by Messrs. Diamond and Tucker. It is only a preliminary report. But it does not have kind words for the authorities who failed to stop the attempted manipulation of Libor before and during the financial crisis. (Barclays management is of course completely coruscated.) As jaded as we’ve all become by the Libor scandal, it’s pretty damning.
The bank beat expectations with an adjusted profit before tax of £4.2bn, cut its eurozone exposures, set aside £450m to compensate small and medium-sized businesses that were mis-sold interest rate hedging products and said sorry again… which was nice. From the statement:
As last week was dominated by holidays and the Supreme Court’s healthcare ruling in the US, it’s taken a little longer than usual for some of the econoblogopunditsphere there to get really fired up about the Libor scandal. But it’s well and truly happening now. First up Nouriel Roubini, who says things have become worse since then financial crisis: the TBTF banks are bigger, along with their conflicts of interest. Our (rough) transcript of one part follows:
Asian stocks and crude oil fell and the euro headed for its worst week this year after stimulus measures from major central banks failed to assure investors the moves will be enough to boost economic growth. (Bloomberg) Investors are now focused on US jobs data due today. (Financial Times) Barclays’ Libor settlement with the CFTC is likely to have far-reaching implications for how benchmark interest rates are set in the future. “The pact is unusual because it requires Barclays to not only beef up its internal compliance systems but to take on a role as an advocate for increased oversight for the industry.” (Financial Times)
Barclays chairman Marcus Agius will resign this morning. “The buck stops with me,” he will say in a statement which will also praise the bank’s executive team, the FT reports. Sir Michael Rake, chairman of BT and the most senior independent Barclays director, has been mentioned to shareholders as a possible replacement. The question is whether it will satisfy public anger at the bank and its chief executive Bob Diamond after the Libor scandal. Over the weekend it emerged Diamond was a party in a conversation with deputy BoE governor Paul Tucker in 2008, which was described in the Libor investigation. (Financial Times) China’s June PMIs were poor: the HSBC/Markit Economics number was 48.2, down from 48.4 in May. The official PMI figure published on Sunday was 50.2, down from 50.4 the previous month. The components of both indices pointed to weakness in new orders and exports. The readings suggest GDP growth has fallen below the important 8% level, and more stimulus measures are expected. (Financial Times)
A scroll through the comments on any post or article relating to the LIBOR-fixing scandal makes the verdict of the Court of Public Opinion pretty clear: ‘Hang the lot of them.’ But there’s a less emotional requirement here to at least take a stab at the likely financial damage to Barclays et al as regulatory fines are followed by action in the courts. Sandy Chen at Cenkos has done some early maths:
The probe into the abuse of Libor during the financial crisis continues. Investigators are sorting through allegations of criminal intent and regulatory shortfalls, with three of the world’s biggest banks – UBS, Citigroup and Barclays – voluntarily approaching regulators with information about possible abuse of the rate-setting process by current and former staff, according to the FT. Given the above it’s interesting to come across the following justification from JCD Rathbone (JC Rathbone Associates) as to why banks may have felt compelled to break the rules. From Tuesday’s Weekly Bulletin (our emphasis):
UBS has suspended some of its most senior traders in connection with an international probe into the possible manipulation of interbank borrowing rates, the FT reports, citing people familiar with the investigation. Regulators in North America, Europe and Japan have been investigating whether traders at big US and European banks colluded to influence the London interbank offered rate, or Libor, and other benchmark lending rates. People familiar with the investigation told the Financial Times that Yvan Ducrot, the co-head of UBS’s rates business, and Holger Seger, the global head of short-term interest rates trading, are among a group of Zurich-based traders who have been suspended pending further inquiries into the bank’s rate-setting processes.
Citigroup was forced to write off $50m after two traders accused of attempting to influence global lending rates left the bank, says the FT, citing people familiar with a worldwide investigation that is gathering pace. Nine separate enforcement agencies in the US, Europe and Japan have been probing whether US and European banks manipulated the London Interbank Offered Rate or Libor, the benchmark reference rate for $350tn worth of financial products, and other interbank lending rates. So far, only Japan’s Financial Services Agency has formally sanctioned banks in connection with the probe.
Citigroup was forced to write off $50m after two traders accused of attempting to influence global lending rates left the bank, according to people familiar with a worldwide investigation that is gathering pace. Nine separate enforcement agencies in the US, Europe and Japan have been probing whether US and European banks manipulated the London Interbank Offered Rate or Libor, the benchmark reference rate for $350tn worth of financial products, and other interbank lending rates, the FT reports. The investigation into possible manipulation of global interbank lending rates has accelerated in recent weeks, with more than a dozen traders at banks including Royal Bank of Scotland, Deutsche Bank, UBS and JPMorgan Chase fired, suspended or placed on administrative leave.
More than a dozen traders and brokers in London and Asia have been fired, suspended or put on leave by their employers as a multinational probe into alleged manipulation of crucial global lending rates accelerates, reports the FT. Regulators have been investigating US and European banks that help set interbank lending rates in London and Tokyo since late 2010, in an intensive profile inquiry that spans three continents and involves at least nine separate enforcement agencies. Icap, the world’s largest inter-dealer broker, has suspended one employee and put two more on administrative leave in the past six weeks. Icap declined to comment beyond noting that it was “co-operating fully” with authorities and had disclosed the official requests for information late last year. The story cites people familiar with the probe as saying traders have also been suspended, fired or placed on leave in recent months at Deutsche Bank, JPMorgan Chase, Royal Bank of Scotland andCitigroup. All four banks declined to comment. Regulators sought information from the three interdealer brokers that dominate the rates market – Icap, Tullett Prebon and RP Martin, looking at information-sharing among brokers, hedge funds and banks, the sources said. An RP Martin spokesman said the firm was not under investigation and declined to comment on suspensions. A Tullett Prebon spokesman said the firm had not suspended any employees. Separately, the FT reports the US authorities are modelling their investigation on an earlier prosecution of three energy companies for violations of the Commodity Exchange Act, which resulted in criminal settlements and prison terms of up to 14 years.
Barclays is emerging as a key focus of the US and UK regulatory probe into alleged rigging of benchmark interbank lending rates that are the reference point for $350,000bn in financial products, reports the FT citing people familiar with the probe. Investigators are examining whether communications between the bank’s traders and its treasury arm, which helps set the daily London interbank offered rate, or Libor, violated “Chinese wall” rules against information-sharing between different parts of the bank. The investigators are also said to be looking at whether there was any improper influence on Barclays’ submissions to the daily survey that is used to set the Libor rates at which banks borrow from each other. In the 2006- 08 period in question, Barclays was one of 16 banks that contributed to the US dollar rate.
Regulators probing alleged manipulation of a key interbank lending rate have focused their demands for information and interviews on five global banks, according to people familiar with the investigation, the FT says. UBS, Bank of America, Citigroup and Barclays have received subpoenas from US regulators probing the setting of the London interbank offered rate, or Libor, for US dollars between 2006 and 2008. The Telegraph says allegations of possible manipulation have been “met with suprise by traders.”
Regulators probing alleged manipulation of a key interbank lending rate are focusing on five global banks, reports the FT, citing people familiar with the probe. UBS, Bank of America, Citigroup and Barclays have received subpoenas from US regulators probing the setting of the London interbank offered rate, or Libor, for US dollars between 2006 and 2008. Investigators have also demanded information from West LB, although the bank said it had not had a subpoena. Several witnesses have been interviewed by UK and US investigators, who are examining whether rates were manipulated in the financial crisis, when some commentators complained that Libor rates did not reflect the real market. Lex notes that given the plethora of counterparties dependent on Libor, any bank found guilty “should prepare to be thrown back into crisis”.
Regulators in the US, Japan and UK are investigating whether some of the biggest banks conspired to “manipulate” the benchmark interest rate used to calculate the cost of billions of dollars of debt, the FT says. The investigation centres on the panel of 16 banks that help the British Bankers’ Association set the London interbank offered rate, or Libor — looking at how Libor was set for US dollars during 2006 to 2008, immediately before and during the financial crisis, people familiar with the probes said. FT Alphaville adds that the probe came to light on Tuesday after UBS revealed in its annual report that it had received subpoenas relating to the investigation.
Libor — the interbank rate set by, erm, the banks and curated by the British Bankers’ Association (BBA) — has not been without its critics in recent years. And the creation of the rate has been also not been without scrutiny. The BBA started a review into possible manipulation of the rate back in early 2008 — even before Libor skyrocketed to its financial crisis highs. We can’t remember what the outcome was, though the review centred on banks ‘providing misleading quotes.’