Barclays fined £290 million

[garbon]

I once had a Barclay's account.

[CountDeMoney]

I once had a Barclay's account.

Of course you would've had one for Karen Barclay's.

[Sheilbh]

I don't know--I wouldn't be surprised if they pay out a lot more than that through lawsuits in the US.

Yeah, the real costs will be through lawsuits.  And given the warning that other banks are affected this looks like it could be far more costly in total, from the Economist:

Barclays' LIBOR embarrassment
Eagle fried
Jun 27th 2012, 22:27 by R.D.


WHEN a trader asks a colleague to submit false information in order to boost his profits, the correct answer is not "donefor you big boy". This response was one of a host of exchanges involving 14 Barclays traders that were revealed this week as part of a probe by Britain's Financial Services Authority (FSA) and American agencies including the Commodities Futures Trading Commission (CFTC) and the Department of Justice (DoJ).

The probe relates to LIBOR, the London inter-bank offered rate. LIBOR is supposed to be a trusty financial yardstick, measuring the costs banks face when they borrow from one another. Set each day, LIBOR determines the prices of loans and derivatives contracts worth several multiples of global GDP. The flaw in the system is that banks can estimate their own LIBOR rates. Although these estimates are supposed to be calculated by a team that is ringfenced from other parts of the bank, the probe shows that they were influenced at the behest of Barclays' traders.

Back in 2006 the Barclays staff involved had little thought for the wider ramifications of distorting LIBOR. They had more important things on their minds, like champagne. Asked to fudge the numbers by a competitor bank, Barclays acquiesced. The grateful reaction: "Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger."

The traders involved were those placing bets on interest-rate derivatives. These contracts are large enough—the total market was worth $554 trillion in 2011—that small price changes can mean big profits. Indeed, other messages revealed that for each basis point (0.01%) that LIBOR was moved, those involved could net "about a couple of million dollars". Given this sort of payoff, one bottle of Bollinger seems a bit mean.

For Barclays, this is beyond embarrassing. The e-mails—the FSA tracked 257 messages asking for LIBOR and its yen and euro equivalents to be altered—make painful reading. The fact that the investigation involved the FBI is a reputational disaster in itself. To its very slight credit, Barclays has not blamed this on rogue traders: its CEO, Bob Diamond, and other senior executives have positioned this as a failing of the bank as a whole. Mr Diamond and three other senior staff have volunteered to forgo their annual bonus this year.

The savings will not offset the fines Barclays has been handed. The bank received a £60m ($93m) fine from the FSA, the biggest ever doled out by the regulator (even after a 30% reduction because Barclays co-operated). This number still pales beside the penalties imposed by the CFTC and DoJ, which brought the total fine to £290m, around 10% of pre-tax profits in the bank's most recent financial year.

The share price actually rose on news of the settlement: investors presumably hope this will draw a line under the LIBOR investigation. But the FSA's report includes a mine of information on exactly how and when LIBOR was being manipulated. This will be useful for claimants in civil cases being brought against Barclays in America, says Anthony Maton of Hausfeld, a law firm representing claimants there. Barclays is also likely to face new civil cases, including in Britain, as customers on the wrong side of LIBOR movements bring claims.

Other banks have reason to fret. At least 12 banks are involved in LIBOR investigations around the world: the Barclays fines may herald similar penalties for other lenders. More disturbing still, if banks did distort money markets then they affected anyone with a LIBOR-linked contract. That would open them up to claims stretching far beyond their own customers. 


Unusually, Barclays has not sought to blame this on rogue traders: intead its CEO, Bob Diamond, and other senior executives have positioned this as a failing of the bank as a whole. Mr Diamond and three other senior staff volunteer to forgo their annual bonus this year.

But the all-in cost to the bank could run much higher. First, the FSA's report includes a mine information on exactly how and when LIBOR was moved. This will be useful for claimants in civil cases being brought in America, according to Anthony Maton of Hausfeld LLP, a law firm representing claimants there. Second, Barclays is also likely to face new civil cases, including in Britain, as customers on the wrong side of LIBOR movements bring fresh claims. The time limit for bringing such a claim is 6 years, so LIBOR could drag profits for years to come.

[Sheilbh]

Barclays shares are down 20% and the FSA's reminded everyone they're investigating a number of banks over this.  Some analysts are saying this could turn into a crisis of confidence in systemically important institutions - and confidence matters more to banks than most institutions

[mongers]

Barclays shares are down 20% and the FSA's reminded everyone they're investigating a number of banks over this.  Some analysts are saying this could turn into a crisis of confidence in systemically important institutions - and confidence matters more to banks than most institutions

Makes the 'rescue' of 2008 look more of a FAIL every day. 

[Sheilbh]

We need a public inquiry into banking and the crisis.  In this how did the regulators fail to notice?  Also surely this is fraud?

Barclays Libor Fine Sends Stocks Lower as Probes Widen
By Joshua Gallu, Silla Brush and Lindsay Fortado on June 28, 2012

Barclays Plc (BARC)'s record $451 million fines for interest rate manipulation sent bank shares plunging as U.S. and U.K. authorities pursue sanctions in a global investigation of more than a dozen lenders.

Barclays shares dropped as much as 18 percent as U.K. Chancellor of the Exchequer George Osborne called for a criminal probe amid speculation that lenders could face billions of dollars in lawsuits.

Traders at the U.K.'s second-biggest bank by assets routinely coordinated with counterparts from at least four other banks in an attempt to move interest rate benchmarks, according to documents released yesterday by the U.S. Commodity Futures Trading Commission, the U.S. Justice Department and the U.K. Financial Services Authority. The benchmarks included the London interbank offered rate, or Libor, and Euribor, a related euro- denominated rate. In both cases, the goal was to generate profits on derivatives held by the banks, the agencies said.

"It's going to put a great deal of pressure on the other banks to settle because somebody has set a precedent," said Jerry W. Markham, a law professor at Florida International University, a former chief counsel in the CFTC's enforcement division.

The case offers the most detailed public account yet of conduct that prompted regulators and criminal authorities spanning three continents to investigate whether traders colluded to rig interest rates and banks sought to bolster their perceived stability by hiding their true costs of borrowing during the financial turmoil of 2008.

Record Fines
At stake is the credibility of the decades-old Libor system and the securities and loan products that rely on it, ranging from an estimated $554 trillion in interest-rate contracts, according to the FSA, to mortgage and credit-card payments made by consumers around the world.

Barclays pledged to pay $200 million to the CFTC, $160 million to the Justice Department, and 59.5 million pounds ($91 million) to the FSA. The fines were the largest in the history of the CFTC and FSA.

Barclays tumbled 11.5 percent to 173.45 pence at 1:19 p.m. in London as Chief Executive Officer Robert Diamond came under pressure from lawmakers.

Fraud Office
"We expect that the cost of lawsuits related to Libor manipulation will dwarf the fines imposed on Barclays," said Sandy Chen, a banks analyst at Cenkos Securities Plc in London, who is "penciling in multi-year provisions that could run into the billions."

Prosecutors at the U.K. Serious Fraud Office are now investigating the case, Osborne told lawmakers in Parliament today, calling the matter "a shocking indictment of the culture of banks."

Prime Minister David Cameron told reporters in northern England that Barclays has "some questions to answer," while Matthew Oakeshott, a member of the Liberal Democrat party who sits in Parliament's upper House of Lords, called on Diamond to step down.

Citigroup Inc. (C) (C), Royal Bank of Scotland Group Plc, UBS AG (UBSN), ICAP Plc (IAP), Lloyds Banking Group Plc (LLOY) and Deutsche Bank AG are among the firms regulators are investigating. A total of 18 banks are surveyed as part of the process of determining Libor and related rates.

RBS shares slid as much as 14 percent today, Lloyds fell as much as 7.8 percent and ICAP dropped as much as 4.7 percent. UBS was down as much as 3.5 percent, and Deutsche Bank declined as much as 5.5 percent.

Assisting Probe
Barclays is assisting the investigation into other firms and individuals, and was the first to provide "extensive and meaningful cooperation," the Justice Department said. Zurich- based UBS last year disclosed it had opened its doors to U.S. antitrust investigators in exchange for immunity.

"Over the next relatively short period of time, others are going to have to decide whether either to settle or to fight," Daniel Waldman, a Washington-based partner at Arnold & Porter LLP and former CFTC general counsel, said in a telephone interview.

Libor is derived from a survey of banks conducted each day on behalf of the British Bankers' Association in London. Lenders are asked how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and Swiss francs. After a set number of quotes are excluded, those remaining are averaged and published for each currency by the BBA before noon.

Chinese Walls
Regulators have focused on the lack of so-called Chinese walls to separate traders from employees making interest-rate submissions on behalf of their banks. They are also looking into whether the banks' proprietary trading desks exploited the information they had about the direction of Libor to trade interest-rate derivatives.

Since March, a group of U.K. bankers and regulators has been reviewing how Libor is set. The group, established by the BBA, has so far resisted calls to overhaul the rate because structural changes risk invalidating trillions of dollars of contracts.

Joseph Eyre, an FSA spokesman, said "the BBA's review is continuing and we will consider any recommendations arising from that exercise."

Attempts to influence the rates began several years before the financial crisis, regulators said. Between 2005 and 2008, Barclays's euro swaps traders coordinated with counterparts at other banks in attempts to manipulate Euribor, according to the CFTC and Justice Department.

Daily Discussions
Barclays's employees overseeing Euribor submissions routinely accommodated requests that benefited trading positions at other banks, which were sometimes passed along by former Barclays traders who had left for other financial institutions.

One senior euro swaps trader employed at the time by Barclays spoke daily with traders at other banks about how to change the official Euribor rate in a manner that benefited trading positions, the CFTC said. The agency didn't name the other banks.

On Nov. 10, 2006, for example, a trader at a bank identified by the CFTC as "bank A" asked the Barclays trader to request a low one-month Euribor setting at Barclays and at a second bank, "bank B." The Barclays trader made a request to bank B and then sent a message to the Barclays employee responsible for Euribor submissions: "hi [senior Euribor submitter]. I know you can help. On Monday we have a huge fixing on the 1m and we would like it to be low if possible. Tx for your kind help."

'Low Fixing'
The employee responded: "of course we will put in a low fixing."

A separate instance occurred over a fourth-month period from at least December 2006 until March 2007 during which the senior Euro swaps trader tried to align trading strategies among multiple banks to influence the three-month Euribor fixing on March 19, 2007, according to the CFTC.

Barclays employees responsible for submitting rates regularly followed the requests of the bank's derivatives traders. Of 111 requests analyzed by the FSA and made by traders between January 2006 and August 2007 relating to U.S. dollar Libor, only 14 percent of submissions were inconsistent with the requests. Of 42 requests analyzed by the FSA and made by traders from February 2006 to June 2008 relating to Euribor, only 12 percent were inconsistent with requests.

Market Perceptions
While regulators detailed the attempts to manipulate the rate, they stopped short of claiming the traders were successful. That may prove a stumbling block for private lawsuits claiming that holders of securities tied to Libor were harmed by the conduct, Markham said.

"That really doesn't help the private litigant so much," Markham said of Barclays's settlement. "It doesn't really give them a road map to say, 'OK, this is why the price is artificial and here is why they caused it."'

During the 2008 financial crisis, senior managers at Barclays instructed employees to report artificially low borrowing costs to avoid appearing weaker than its competitors, regulators said.

In October 2008, a Barclays employee had a conversation with the Bank of England about market and media perceptions related to Barclays's Libor submissions, which had generally been higher than those of competitors. In reaction to the external pressure and the discussion with the central bank, Barclays believed it needed to lower its Libor submissions, the CFTC said.

'Within the Pack'
A senior Barclays manager then instructed employees to lower Libor submissions for dollars and sterling so the bank would be "within the pack," or in line with rates reported by other banks, the CFTC said.

According to the U.K.'s FSA, the Bank of England didn't instruct Barclays to lower its Libor submissions during the phone call. Instead, a "misunderstanding or miscommunication" occurred within Barclays as the substance of the conversation was relayed down the chain of command, the FSA said.

The Barclays settlement helps set a benchmark for what other banks should expect to pay and do to resolve related claims, Markham said.

"Nobody wants to go first, but once they do it becomes easier for the other parties," said Markham, who added that most regulatory cases are settled, not contested in court. "It's become the cost of doing business."

To contact the reporters on this story: Joshua Gallu in Washington at [email protected]; Silla Brush in Washington at [email protected]; Lindsay Fortado in London at [email protected]

To contact the editors responsible for this story: Maura Reynolds at [email protected]; Edward Evans at [email protected]

I agree with Dan Hodges.  I'm sick of talk about changing the culture of banking.  Let's just regulate them.

[Richard Hakluyt]

I have not had time to look at all this in detail, at first blush it looks like criminal activity to me, I'm losing all patience with the fuckers.....sorry....bankers.

[Martinus]

Damn, I chose the wrong line of business. I'd like to be in one where the penalty for a serious long-term criminal activity is that I don't get a bonus.

[Sheilbh]

I have not had time to look at all this in detail, at first blush it looks like criminal activity to me, I'm losing all patience with the fuckers.....sorry....bankers.

Agreed.  I think we should prosecute them (pour encourager les autres) and start heavily regulating them.  If they want to go to Zurich then they can.  As it is they're too much of a liability

[Neil]

I have not had time to look at all this in detail, at first blush it looks like criminal activity to me, I'm losing all patience with the fuckers.....sorry....bankers.

Agreed.  I think we should prosecute them (pour encourager les autres) and start heavily regulating them.  If they want to go to Zurich then they can.  As it is they're too much of a liability

It's an interesting moral question.  Does make sense to regulate an industry based entirely on graft and fraud out of existance, even though it will result in tremendous hardship and a return to poverty for most Britons?

[Sheilbh]

Another FSA probe.  Nothing in comparison to fiddling with LIBOR or EURIBOR, but another example of why it's time to stop worrying that banks are so sensitive:

Barclays missold financial products to small businesses
Bob Diamond faces fresh pressure amid Libor scandal as FSA says four banks must redress customers over serious failings
Jill Treanor, City editor

Bob Diamond is facing fresh pressure about the conduct of Barclays bank after the Financial Services Authority cited it as one of four high street banks that missold financial products to small businesses.

Bailed-out banks Lloyds Banking Group and Royal Bank of Scotland as well as Barclays and HSBC will be required to pay redress to customers who lost out as a result of products they were sold to protect against movements in interest rates over the past 10 years, under an agreement reached with the City regulator in the early hours of Friday morning.

The discovery of "serious failings" in the sale of these so-called interest rate swaps comes as the banking industry is mired in controversy about manipulating interest rates following the record-breaking £290m fine slapped on Barclays on Wednesday.

Diamond is refusing to quit despite David Cameron's call for accountability at the top of the bank in what has been described as a "shocking indictment" of the banking industry culture. The fine on Barclays, which was announced after the bank settled with the FSA and two US regulators, is part of an international investigation into up to 20 banks over the attempted manipulation of interest rates known as the London interbank offered rate (Libor) and the Euro interbank offered rate (Euribor), between 2005 and 2009. They are benchmark rates that play a crucial role in determining the cost of borrowing for households and companies. RBS and Lloyds are also co-operating with regulators over this investigation.

Friday's announcement by the FSA about interest rate swap misselling follows a two-month review during which 100 customers came forward to complain about their treatment by the banks, which sold 28,000 of these products intended to help protect against interest rate movements during a 10-year period.

Martin Wheatley, who is to head the Financial Conduct Authority when it is spun out of the FSA next year, said the bosses of the relevant parts of the bank – Diamond at Barclays, Antonio-Horta Osorio, the chief executive of Lloyds, and the heads of corporate banking at RBS and HSBC, Chris Sullivan and Brian Robertson, respectively – would take personal responsibility for resolving the situation.

"They have also committed that, except in exceptional circumstances, they will not foreclose on or vary existing lending facilities without the customer's prior consent," Wheatley said.

The regulator is keen to avoid a re-run of the payment protection insurance misselling scandal which, while on a much larger scale, was delayed for years while the banks argued with the FSA in the courts.

"I am pleased that Barclays, HSBC, Lloyds and RBS have agreed to do the right thing by their customers and offer redress or a review of past sales," Wheatley said. "These firms have responded to the need to provide a fair deal for customers by working with us, and I welcome this outcome."

Calculating the amount of redress to each customer is likely to be complex as some products may need to be cancelled and the FSA has not put a timescale on when the redress must be agreed. An independent scrutineer will be appointed and the FSA will oversee the process.

The British Bankers' Association issued a statement on behalf of the high street banks: "Our members have been working closely with the FSA while it carries out its thematic review into interest rate swaps and will continue to co-operate fully."

HSBC said it had sold 171 of the most complex products scrutinised by the FSA over the 10 years under review and 79 of these were still in existence. Those customers had been contacted since April and offered help with "remediation".

HSBC sold around 7,000 of a simpler type of interest rate product.

Lloyds said the cost of the redress would not impact on the bank's finances – unlike PPI which has cost £3.7bn.

Barclays said it had co-operated fully with the FSA. "Where we have made mistakes in the way we have provided these for clients we are committed to resolving them," a spokesman said.

[Sheilbh]

Bob Diamond cuts up rough as he quits Barclays
Chief executive forced out as he prepares riposte over Libor rate-fixing scandal
Jill Treanor, City editor
guardian.co.uk, Tuesday 3 July 2012 21.06 BST

Bob Diamond, the boss of Barclays who has resigned from the embattled bank , was expected to come out fighting for his reputation on Wednesday when he appears before a powerful committee of MPs.

The high-profile and outspoken banker is expected to unleash a wave of explosive revelations about the role of City watchdogs and senior Whitehall figures in the manipulation of crucial interest rates that landed the bank with a record £290m fine last week.

The chancellor, George Osborne, who had been putting the banker under intense pressure to quit, said his sudden resignation was "the right decision for Barclays – and for the country". "I think Bob Diamond's resignation is the first step towards the new age of responsibility we need to see."

After an extraordinary 24 hours during which the bank's chairman, Marcus Agius, quit only to be temporarily reinstated once Diamond had departed, the role of Bank of England officials in the rate-rigging scandal is likely to take centre stage in the hearing with MPs.

With Barclays in turmoil, Diamond is fighting for his own reputation, which politicians have used to symbolise the culture of greed in City banking. Diamond, under pressure from the banking regulator and the governor of the Bank of England, Sir Mervyn King, quit after he decided he would be the lightning rod for the scandal at the hearing.

The American-born banker, who could be in line for a payoff of £22m, is facing pressure to walk away with nothing after being paid £100m by the bank in the past six years. There are also calls by shareholders for the bank to look at ways of clawing back bonuses paid in the past.

In a statement, Diamond said: "I am deeply disappointed that the impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth."

At his appearance before the Treasury select committee of MPs – chaired by the Conservative MP Andrew Tyrie whom the government has also appointed to lead a parliamentary inquiry into banking, Diamond will try to explain the bank's actions for the period between 2005 and 2009, when the attempts to manipulate Libor took place.

Barclays released an email written by Diamond recording a conversation with Paul Tucker, the deputy governor of the Bank of England, in October 2008 that will be scrutinised by the MPs.

The sequence of events unleashed by the email in the darkest days of the banking crisis also forced the departure of Jerry del Missier, who was Diamond's closest colleague at the bank.

Del Missier, a Canadian, was promoted to chief operating officer a fortnight ago, but was named as the top executive who instructed more junior staff to lower the bank's submissions to the key benchmark rate, the London interbank offered rate (Libor), at the centre of the current scandal.

But MPs will be keen not to let the controversy over the potential involvement of the Bank of England – and unnamed Whitehall officials – to detract from regulatory evidence that prior to the 2008 crisis Barclays traders were attempting to manipulate Libor to help boost the bank's profits. Emails showing "this one's for you big boy" and references of bottles of Bollinger champagne are hard for the bank to explain.

Diamond will admit that in the period from 2005 to 2007, when traders were trying to profit from Libor movements, the bank – along with others – believed it was a low-risk business and that it did not have systems in place to prevent the manipulation taking place.

A submission by the bank to the Treasury select committee of MPs ahead of Diamond's appearance, shows that the former chief executive will say there was no knowledge by anyone in the bank above desk supervisor level of this conduct at the time.

"Senior management were not aware," the Barclays submission says.

In the submission, the bank was quick to apologise. "These explanations are in no way intended to excuse any of the events that occurred. These events should never have taken place, and Barclays deeply regrets that they did," the document said. The Libor rigging takes two phases – the first period from 2005 when traders were changing rates at the request of rivals and colleagues and the second during the banking crisis when a conversation between Tucker and Diamond is becoming a key focus.

Diamond has made clear that he did not believe Tucker had ordered him to lower the bank's submission to Libor – to help avoid any false impression that the bank was in difficulty – but del Missier interpreted Diamond's remarks in a different way.

But the reference in the email to Whitehall sources asking Tucker why Barclays' submissions were higher than those of its rivals sparked speculation about potential involvement from government ministers.

Alistair Darling, the former Labour chancellor, said it was important the Treasury select committee "at the earliest possible opportunity" called Tucker to give his account of the conversation with Diamond. He added he had made no calls to the bank asking them to put pressure on anyone to lower Libor rates.

Asked if the Bank of England had ordered the banks to lower its rates he said: "I would find it absolutely astonishing that the bank would ever make such a suggestion and equally I can think of no circumstances that anyone certainly in departments for which I was responsible – the Treasury – would ever suggest wrongdoing like this.".

He added: "At the time these calls were made in 2008 it was just after Lehmans had collapsed, and just after the bank rescues, one of the things you looked at was how much it was costing banks to borrow because that gave you an assessment of their financial standing that is why it was so critically important."

He said the way to get the Libor rate down at the time was through policy such as credit guarantee scheme, and the special liquidity scheme.

A spokesman for another minister at the time, Lady Vadera, said: "She has no recollection of speaking to Paul Tucker or anyone else the Bank of England about the price setting of Libor."

Diamond is expected to tell MPs that when he was running the investment banking arm, Barclays Capital, the bank told the British Bankers' Authority, which ran the rate-setting process, that it was "consistently concerned" during the crisis about the lower rates being submitted by rivals. In the Lords, Lord Myners, Labour's City minister during the banking crisis, contended that the BBA executive had been warned of Libor rate-rigging, but chose to do nothing about it.

Myners said: "What we need to do is to understand what went wrong here, which has cost this country so much – 7% of national output in perpetuity, millions of people placed in a position of distress, unemployment, worry about their mortgages – they're not going to be satisfied by an inquiry led by politicians."

The anger unleashed by the fine on Barclays – which is expected to be followed by regulatory actions – has led the government to attempt to set up a committee of Lords and MPs into banking. MPs will be asked to vote on Thursday whether to set up a parliamentary inquiry of peers and MPs into the banking crisis, as proposed by the government, or instead set up a judge-led inquiry, as proposed by Labour.

In the absence of any further private talks in advance of the vote, Labour will lose and will then have to decide whether to co-operate with the parliamentary inquiry or in effect block any inquiry by refusing to sit on the committee.

Ministers are already preparing to accuse Labour of running to hide from its responsibilities for the banking crisis if it blocks an inquiry, and continues to insist only a Judge led inquiry will be effective.

It's worth remembering that, from what I can gather, Barclays has come first because it cooperated very fully with the DoJ and FSA.  There are other banks in the UK, US and Europe who are still being investigated and it looks like they were doing much the same.

[The Minsky Moment]

No, Grandma with her 50 shares of US Steel will be located by a Wall Street lawyer who will put together a class action lawsuit. A fair estimate of the damages will be $2 billion, the lawyer will settle with the firm for $500 million. In securities class action lawsuits often have half the award or more going to legal and administrative costs, so Granny's lawyers will be well paid, while Grandma will get pennies on the dollar for her losses.

Grandma with US Steel could, but grandma with Barclays maybe not.
The Supreme Court ruled a couple of years ago that US courts couldn't entertain such suits with respect to shares trading on overseas exchanges.  Which means that only purchasers of Barclays ADRs could sue under the US federal securities fraud laws.

[Sheilbh]

The Serious Fraud Office has formally started an investigation into LIBOR.

[mongers]

The Serious Fraud Office has formally started an investigation into LIBOR.

I'm intrigued by the presumption of 'innocence' in this country, plenty of politicians and political commentators came straight out with "but of course there's no criminal activity" where as the same people assume anyone claiming benefits is scrounging off of the state.