Barclays fined £290 million

[Sheilbh]

Actually everyone I've read seems to be presuming there is criminal activity in this case

[mongers]

Actually everyone I've read seems to be presuming there is criminal activity in this case

I meant in the immediate response to it, it's wrong but there's nothing illegal, whereas as you say, clearer heads are now thinking this through and concluding why shouldn't some or much of this behaviour not be criminal.

[jimmy olsen]

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.

That's like 8-9 times world GDP, where does this money come from!

[PJL]

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.

That's like 8-9 times world GDP, where does this money come from!

The contracts supposedly cancel each other out, so the net worth is zero. Unless one side goes bankrupt, in which case the financial system will collapse completely.

[The Minsky Moment]

Actually everyone I've read seems to be presuming there is criminal activity in this case

Just speculating but it does seem to me that a criminal case would be hard to make for the period in 08 when normal interbank lending shut down altogether.  During that time, the only truthful bid would be to non-tender.  Although Diamond's testimony didn't demonstrate any improper action by BoE, it is clear that the Bank was concerned about keeping the LIBOR quotes going as normally as possible, and rightly so.

[jimmy olsen]

Looks like this scandal is rapidly ballooning in significance.

http://marketday.msnbc.msn.com/_news/2012/07/11/12684779-a-scandal-over-rate-fixing-is-about-to-hit-the-us?lite

A scandal over rate-fixing is about to hit the US

© Phil Noble / Reuters / REUTERS

A branch of Barclays bank is seen in northern England.
By Roland Jones

It may seem like just another obscure banking scandal at a 322-year-old British bank, but there are a number of good reasons why you should care about the LIBOR rate-rigging scandal now roiling the world's biggest and most powerful banks, including that it probably cost you money if you own a mortgage.

In late June, Barclays paid $453 million to regulators in the U.K and the U.S. to settle accusations that it had tried to influence LIBOR, or the London interbank offered rate -- a benchmark interest rate that affects the price at which consumers and companies across the world borrow funds.

The rate, which is fixed via a poll of banks by the British Bankers' Association, an industry group in London, is the benchmark for setting payments on some $360 trillion worth of financial instruments, ranging from credit cards to more complex derivatives, such as futures contracts.
Advertise | AdChoices

The potential scope of the unfolding scandal, now acquiring global significance, is enormous. Other banks that have disclosed that they are under investigation for LIBOR manipulation include big U.S. banks, such as Citigroup and JPMorgan Chase, and also HSBC, Deutsche Bank and the Royal Bank of Scotland.

Economists and analysts predict the LIBOR scandal could be one of the most expensive to hit the banking sector since the financial crisis, engulfing more multinational banks with fines that dwarf the one handed to Barclays and further eroding investor confidence in the banking sector.

It has already claimed the heads of the top leaders at Barclays -- Chief Operating Officer Jerry del Missier, Chairman Marcus Agius and Chief Executive Bob Diamond -- and more heads at major banks are likely to roll, said Sheila Bair, former chair of the U.S. Federal Deposit Insurance Corporation, a government agency designed to promote public confidence in banks.

"It depends on how pervasive it was at the other institutions," Bair told CNBC. "It sounds like it was pretty widespread."

Bart Naylor, an expert in financial regulation at the consumer advocacy group Public Citizen, said that a wave of investor lawsuits seems inevitable, especially here in the U.S.

Related: Are you making $30,000 a year or less? We want to hear from you.

Naylor said he can envisage a scenario where investors still involved in contracts that were set with erroneous LIBOR rates could call the contract null and void because it was built on incorrect information. There are likely thousands of such arrangements, he said. With more bank profits coming from derivatives trading as opposed to traditional interest incomes from loans, the potential for class action suits is significant, he said.

The potential avalanche of lawsuits has already started.

Last year the city of Baltimore sued a handful of major banks in federal court in New York, including Bank of America, JPMorgan Chase and Deutsche Bank, claiming those institutions conspired to manipulate LIBOR, which affected the city's purchase of hundreds of millions of dollars in interest-rate swaps to hedge against changes in interest rates.

The Baltimore suit has since been consolidated with those filed by other municipalities, pension funds and hedge funds.

Darrell Duffie, a professor of finance at Stanford University's Graduate School of Business, said he expects any lawsuits arising from the LIBOR scandal to cost banks in the region of billions of dollars, or tens of billions of dollars. He cautioned that it's difficult to say which, given that at this point we do not yet know the ultimate extent of the participation of other banks in the LIBOR distortions.
Advertise | AdChoices

"Also we do not yet know how difficult it will be to attribute how much of the distortion in LIBOR is due to the actions of each particular bank," he said, adding that he does expect some lawsuits to be effective in these areas. "But the total damages are very hard to estimate until more of the evidence appears."

Robert Shapiro, former Under Secretary of Commerce for Economic Affairs in the Clinton administration and now chairman of Sonecon, an economic advisory firm, warned Wednesday that the LIBOR scandal could become the largest financial fraud in history.

Shapiro wrote in a blog Wednesday that "coming on top of the reckless and dishonest behavior that led to the 2008 financial collapse, the LIBOR manipulations should finally dispose of the conservative case for self-regulation by Wall Street."

Shapiro notes that LIBOR was off by an average of 30 to 40 basis points for several years (one hundred basis points is equal to one percentage point in an interest rate) -- enough to add $50 to $100 to the monthly cost of a $100,000 loan. He also notes that, between 2007 and 2008, Americans held $11.1 trillion in outstanding residential mortgage debt. During the time of the alleged manipulations between 30 percent and 40 percent of that debt carried adjustable rates, Shapiro said.

"If the bankers' manipulations of the LIBOR was responsible for raising LIBOR rates by just 20 basis points in that period, their shenanigans added between $1.1 billion and $2.2 billion to the yearly interest paid by American homeowners," he said. "And those mortgages account for less than one percent of all of the financial assets and instruments affected by manipulated LIBOR rates."

Now only are banks under scrutiny, regulators are also under the microscope over the LIBOR scandal.

The Federal Reserve Bank of New York said Tuesday Barclays informed it about issues with LIBOR as early as August 2007, saying in a statement that it received "occasional anecdotal reports" from Barclays of problems with the lending rate.

The disclosure comes as Washington lawmakers start to probe how regulators handled the LIBOR scandal. On Tuesday, the Senate Banking Committee said it plans to hold meetings with individuals involved with the matter to learn more about the allegations and related enforcement actions. Those individuals include Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner, according to a statement.
Advertise | AdChoices

"It is important that we understand how any manipulation may impact American consumers and the U.S. financial system," said Senate Banking Committee Chairman Tim Johnson, D-S.D.

The LIBOR issue raises the question of whether regulators are keeping a close eye on banks, and whether the Fed is effectively fulfilling its role as the nation's primary banking regulator, said Public Citizen's Naylor.

"The world's credit markets depend on LIBOR to such an enormous degree that the scandal undermines confidence in regulators -- they should have seen indicators of this manipulation," he said.

The Commodity Futures Trading Commission, which along with British bank regulators brought the case against Barclays, has required the bank to put measures in place to ensure its transactions are given the most weight in determining LIBOR. The bank must also place firewalls between traders and the employees who make LIBOR submissions.

[CountDeMoney]

Other banks that have disclosed that they are under investigation for LIBOR manipulation include big U.S. banks, such as Citigroup and JPMorgan Chase, and also HSBC, Deutsche Bank and the Royal Bank of Scotland.

Oh yeah, HSBC;  the same people that announced 30,000 job cuts last year, and another 25,000 by 2013, on the same day they announced their half-year profits of $11.5 billion. 

Nice guys.  Hope they all go to jail and get ass-raped.

[HVC]

profits or revenues?

and blame the stock market. it's the common people you should hate Cdm. "a 0.001% drop in revenue? sell mother fucker sell!"

And CEO's too. you can hate them. Really, hate everyone, it's the only way to be sure.

[DGuller]

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

Damn, that's when you know the shit has hit the fan.  The Jovial Fraud Office has nothing on those guys.

[Admiral Yi]

Oh yeah, HSBC;  the same people that announced 30,000 job cuts last year, and another 25,000 by 2013, on the same day they announced their half-year profits of $11.5 billion. 

Nice guys.  Hope they all go to jail and get ass-raped.

If bankers are overpaid gangsters, isn't laying them off a good thing?

[Sheilbh]

It goes on:

U.S., UK fine ICAP, charge former staff over Libor rigging
By Kirstin Ridley and Clare Hutchison
Wed Sep 25, 2013 11:41am EDT

(Reuters) - U.S. and British authorities on Wednesday fined ICAP, the world's biggest interdealer broker, $87 million and criminally charged three former employees for their role in the Libor benchmark rate rigging scandal.

The scandal, which has laid bare the failings of regulators and bank bosses, has triggered a sprawling global investigation that has already seen three banks fined $2.6 billion, four individuals charged, scores of institutions and traders grilled and a spate of lawsuits launched.

The U.S. Department of Justice (DoJ) charged New Zealand resident Darrell Read alongside Daniel Wilkinson and Colin Goodman, both from England, with conspiracy to commit wire fraud and two counts of wire fraud in a criminal complaint.

Simultaneously, the U.S. Commodity Futures Trading Commission (CFTC) and UK Financial Conduct Authority (FCA) ordered ICAP's ICAP Europe Ltd unit (IEL) to pay $65 million and 14 million pounds ($22 million), respectively, to settle allegations of wrongdoing.

"These three men are accused of repeatedly and deliberately spreading false information to banks and investors around the world in order to fraudulently move the market and help their client fleece his counterparties," said acting assistant attorney General Mythili Raman of the DoJ's criminal division.

They each face a maximum penalty of 30 years in prison for each count in the event of a successful conviction.

LORD LIBOR

ICAP, run by London businessman Michael Spencer, is the first interdealer broker sanctioned for manipulating benchmark rates such as Libor, the London interbank lending rate, which is used to price trillions of dollars worth of products such as derivatives and mortgages worldwide.

Brokers like ICAP, which match buyers and sellers of bonds, currencies and swaps, have faced allegations that their employees actively colluded with traders seeking to fix rates for personal gain - and were handsomely rewarded.

Wilkinson, employed in the London office of ICAP, supervised a group of derivatives brokers, including Read, who specialized in yen-based products.

According to the charges, the desk's biggest client between 2006 and 2009 was Tom Hayes, the former UBS and Citigroup trader who is also facing criminal charges in Britain and the United States.

Read talked to Hayes almost daily, prosecutors said, and a big part of the ICAP traders' compensation was tied to the business generated by him.

Goodman, a cash broker in ICAP's London office nicknamed "Lord Libor", was meanwhile in contact with derivatives traders at other banks and sent out a daily email with "SUGGESTED LIBORS", prosecutors said.

Hayes allegedly sent requests in through derivatives traders, who passed them on to Goodman. In 2006, prosecutors said, Read asked Goodman to suggest a high six-month rate, saying: "the trader from ubs Tokyo will come over and buy you a curry himself!".

The conduct stretched into 2010, well after allegations of Libor manipulation had surfaced in the public.

"We deeply regret and strongly condemn the inexcusable actions of the brokers who sought to assist certain bank traders in their efforts to manipulate yen Libor," said ICAP Chief Executive Michael Spencer in a statement.

Tracey McDermott, the head of enforcement at the FCA, said the misconduct cast a shadow over the financial services industry as she denounced the "cavalier disregard" the ICAP subsidiary had shown both for its regulatory obligations and the interests of the markets.

AUTHORITIES CLOSE IN

Three banks - Britain's Barclays and RBS and Switzerland's UBS - have paid around $2.6 billion to date to secure civil settlements for rate rigging with UK and U.S. regulators. Britain's Serious Fraud Office (SFO) has leveled criminal charges at three individuals, and U.S. prosecutors have now charged five.

Both have charged Hayes, a Briton being prosecuted in Britain, who once complained in a text message to the Wall Street Journal: "This goes much higher than me."

The cash-strapped SFO has said it hopes to charge more individuals over Libor rate rigging this autumn and has tried to reassure critics it will not hesitate to also pursue senior industry figures or even institutions.

Rabobank, a Dutch bank cooperative, is now expected to become the fifth institution fined by U.S. and UK regulators. Others, such as Deutsche Bank, do not expect to reach a settlement until next year.

(Additional reporting by Aruna Viswanatha, Douwe Miedema; Editing by Carmel Crimmins and Will Waterman)

Some of the choicer quotes from the report:
http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/icapquotes.pdf

February 29, 2008 (via text message to personal mobile phone) (emphasis supplied):
Derivatives Broker 1: If u can pls move 3m up more than 6m wud be much appreciated :-P
Cash Broker 1: What happens if they go down. 3m looked higher yesterday pm and 6m no change
Derivatives Broker 1: Make 6m go lower! They r going up. [Senior Yen Trader] will buy you a ferrari next yr if you move 3m up and no change 6m
Cash Broker 1: Not bad isuppose 9625 against 01625
...
April 18, 2007 (emphasis supplied):
Cash Broker 1: Hi [Yen Desk Head] with ubs how much does he appreciate the yen libor scoop? It seems to me that he has all his glory etc and u guys get his support in other things. I get the drib  and drabs. Life is tough enough over here without having to double guess the libors every morning and get zipper-de-do-da. How about some form of performance bonus per quarter from your b bonus pool to me for the libor service ***
Yen Desk Head: Lord Baliff, I would suggest a lunch over golden week.Monday or Tuesday if you are around. *** As for kick backs etc we can discuss that at lunch and I will speak to [Senior Yen Trader] about it next time he comes up for a chat.
...
June 4, 2007 (message sent to Derivatives Broker 1) (emphasis supplied):
Yen Desk Head: [I need] to cover [Cash Broker 1] with future bonus payments that I had to promise him ... if you could speak to [Senior Yen Trader] out of hours and hint that [Cash Broker 1] had said he would stop giving the libor"flows" then maybe [Senior Yen Trader] could push [his supervisor at UBS] to make the payment, [Senior Yen Trader] said if it were down to him it would be paid as [Cash Broker 1] makes him loads of money and i had to commit to paying lord baliff a regular bonus because basically ... he said it was all over and he would not help anymore if there was not enough money in it for him...
...
August 23, 2007 (emphasis supplied):
Derivatives Broker 1: [Derivatives Broker 3] does [RBS Yen LIBOR Back-Up Submitter] have any influence over their libor sets . . . if he does ask him to do us a favour and edge 6m up please.....think [Bank E Yen Trader] was chasing [Cash Broker 1] for a high fix as well ,so should do us all a favour. . . thanks
Derivatives Broker 3: [RBS Yen LIBOR Back-Up Submitter] is doing them this wek , he wants 6's up so will be marking them up anyway
Derivatives Broker 1: brooliant!! they are making fortunes with these high fixings!!! :-) thats UBS,RBS and [Bank E] + M'Lord should be ok!!
...
April 25, 2008:
Derivatives Broker 1: you need to make sure [UBS Yen LIBOR Submitter] doesn't move these up where he was calling them........don't want all the hard work getting shot away by your own bank.
Senior Yen Trader: i know ... i am trying
Derivatives Broker 1: it will be rather ironic if [Cash Broker 1] and [Yen Broker at Broker B] do their best and [UBS Yen LIBOR Submitter] shoots you in the foot
Senior Yen Trader: yeah just bought him a coffee!
Derivatives Broker 1: :-D could be the cheapest bribe of your life!

There's more in the link

[Sheilbh]

Investigations in currency market fixing are expanding:

RPT-UPDATE 3-UK opens formal probe as FX investigation goes global

Wed Oct 16, 2013 5:31pm BST
* Hong Kong probe signals investigation has reached Asia

* UK regulators say formally opening investigation

* Swiss regulator has said multiple banks potentially implicated

By Rachel Armstrong and Jamie McGeever

HONG KONG/LONDON, Oct 16 (Reuters) - The global probe into suspected price manipulation in the currency market intensified on Wednesday, with Hong Kong becoming the first authority in Asia to look into the allegations and Britain opening a formal investigation.

In echoes of the global probe into interest rate rigging, authorities are examining electronic messages between currency traders to see whether they colluded with counterparts.

Authorities in the United States, Europe and Asia are now looking into suspected price manipulation in the $5.3 trillion-a-day market.

Several media reports have suggested that traders manipulated the fixings, or snapshots of where currencies are trading at a particular time in the market, which are used to price trillions of dollars worth of investments.

Regulators and investors are looking carefully at the integrity of financial benchmarks after a global investigation into interest rate rigging led to fines for four financial firms including Switzerland's largest bank UBS.

Switzerland and the United States are already making inquiries about whether the currency traders used advance knowledge of client orders and each other's trading positions to rig the foreign exchange fixings in their favour.

The Hong Kong Monetary Authority said on Wednesday that it was talking to foreign regulators and banks about the currency market allegations.

"The Hong Kong Monetary Authority is aware of the allegations. We have been in communications with the relevant overseas regulators and (are) following up with individual banks," the de facto central bank said in a statement.

For its part, Britain's Financial Conduct Authority said it had progressed from asking banks for information relating to FX trading to opening a formal probe and is working with agencies overseas.

"Our investigations are at an early stage and it will be some time before we conclude whether there has been any misconduct which will lead to enforcement action," an FCA spokesman said.

Switzerland's financial markets regulator FINMA said earlier this month that it was investigating several Swiss banks. FINMA did not name the banks under scrutiny but said multiple banks around the world were potentially implicated.

The chairman of Credit Suisse, Switzerland's second-largest bank, told a local newspaper this month that it had not found any evidence of malpractice in the FX market following inquiries from regulators.

Investment banks, including Royal Bank of Scotland and Deutsche Bank, have handed over instant messages and emails to Britain's Financial Conduct Authority (FCA) over the summer as part of its probe, banking sources said.

Last week, a source familiar with the matter said the United States was also involved in the probe.

Authorities in the United States and Britain, RBS and Deutsche Bank have all declined to comment about the probes.

CHATROOMS

Stung by revelations of lax oversight and controls in the Libor interest rate rigging scandal, banks are pro-actively handing over information from their FX desks to watchdogs.

"It's a two-way flow of information," said a source at a U.S. bank.

A source familiar with the British inquiry said the tone of messages between foreign exchange traders was similar to exchanges between Libor derivatives traders, whose arrogance as they manipulated benchmark interest rates stunned regulators, politicians and the public in 2012.

Media reports this week suggest the investigations centre on a group of senior dealers at big banks who communicated via electronic chatrooms. The group was known by names such as "The Cartel" and "The Bandits' Club".

The most popular benchmark is the WM/Reuters "fix", which is set at 4 pm London time, using actual trades and order rates from Reuters and rivals such as EBS during a 1 minute "fix" period. WM, a unit of State Street, calculates the benchmark using the median of the trades and the orders.

Bloomberg News reported in June that traders at some banks may have pooled information about their positions through instant messages and sought to manipulate the WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set.

The WM/Reuters FX rates are used by investors and corporations looking for a rate to price their portfolios and currency holdings. Most of the main equity and bond index compilers also use the rates in their calculations.

And apparently prosecutors in the UK are planning to name co-conspirators in the LIBOR case:
http://stream.wsj.com/story/latest-headlines/SS-2-63399/SS-2-357054/

[Jacob]

... the plot thickens.

Nice to see that it's being followed up on with apparent intent.

[jimmy olsen]

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.

That's like 8-9 times world GDP, where does this money come from!

The contracts supposedly cancel each other out, so the net worth is zero. Unless one side goes bankrupt, in which case the financial system will collapse completely.

I don't understand

[Admiral Yi]

More important than PJL's point about every bet having a counterparty is the fact that "notional value" has virtually no signficance when discussing derivatives.  Let's say you own $100 in floating rate bonds currently yielding 2%, and want to fix that 2% (because you're an idiot) so you buy an interest rate swap, trading your variable rate for the fixed rate.  If the interest rate drops down to zero, your counterparty loses $2/year and you gain $2/year.  Yet the "notional value" of this derivative contract is $100.

Notional value concievably has more relevance to the currency swap market, in which you trade a stream of income in, say Korean won, for a fixed equivalent in greenbacks.  Concievably because either currency could theoretically depreciate to worthlessness.

But still i expect that even the volatility of exchange rates is not sufficient to render the "notional value" of currency swaps meaningful in any way.