I’ve occasionally pointed out that one problem with the antitrust Libor lawsuits is that the allegations are mostly “the banks lied about Libor in order to trick each other about their creditworthiness and/or screw each other on some swaps trade,” so it’s hard to claim that they were all working together in a big antitrust conspiracy. But Judge Naomi Reice Buchwald, who mostly dismissed a batch of Libor lawsuits on Friday, has an even better objection, which is that even if it was a conspiracy, it was supposed to be a conspiracy:
[T]he process of setting LIBOR was never intended to be competitive. Rather, it was a cooperative endeavor wherein otherwise-competing banks agreed to submit estimates of their borrowing costs to the BBA each day to facilitate the BBA’s calculation of an interest rate index. Thus, even if we were to credit plaintiffs’ allegations that defendants subverted this cooperative process by conspiring to submit artificial estimates instead of estimates made in good faith, it would not follow that plaintiffs have suffered antitrust injury. Plaintiffs’ injury would have resulted from defendants’ misrepresentation, not from harm to competition.
As Judge Buchwald points out, in a delightfully sensible 161-page opinion, antitrust violations require a competitive market that can be subverted by a conspiracy. Here, there was no competitive market to subvert, and the injury that the plaintiffs suffered – manipulated Libors – could have come as easily from individual bank manipulation as from a grand conspiracy. Normal markets don’t work that way: if I just decide to charge you twice the going rate for my product, and no one else does, that tends not to work. If I submit twice the real rate for my Libor, and no one else does, that kind of still works, though I guess it works better if everyone joins in.
So, so much for antitrust. Read more »
As you may recall, over the summer, former Barclays CEO Bob Diamond resigned in disgrace after revelations that bank employees had engaged in rampant rate rigging on his watch. And while the scandal clearly had an affect on his last performance review, Bob and friends o’ Bob will be pleased to hear that it didn’t actually hurt him too badly come pay day! In addition to a couple million pounds (for half a year’s work), it was announced today that Diamond’s 2012 package also includes lodging while he’s visiting old colleagues in town, as well as a company car and driver. No need to see the guy reduced to dirtying his hands opening door or walking, when he’s already been through so much. Read more »
Those Libor fines don’t pay for themselves! Read more »
Royal Bank of Scotland Group Plc executives told lawmakers they believed it was impossible to rig Libor, less than a week after regulators found traders at the lender manipulated the benchmark for more than four years. “None of us thought of this as a risk that needed this level of attention,” said John Hourican, who resigned as investment-banking head after the fine, told a hearing of the Parliamentary Commission on Banking Standards in London today. “It just didn’t occur to anyone that it could be fiddled,” former investment banking chairman Johnny Cameron told lawmakers. [RBS]
You can question some of the life choices that Tom Hayes, a/k/a Trader A, UBS’s Libor-manipulating-est Libor manipulator, has made, but this seems to me inarguable:
Citigroup executives wooed him in June 2009 at a swanky bar in Tokyo. As they showered him with praise, say people who were there, Mr. Hayes rarely spoke, instead letting his girlfriend, a lawyer, answer questions.
Shady traders: date lawyers! And let them do all the talking for you.
That detail is from this amazing Wall Street Journal article about Hayes. When we last discussed Hayes and his totally open and casual requests to people he’d just met to manipulate Libor for him, I asked “is this: (1) all of these people did not fully realize that they weren’t supposed to be doing what they were doing, (2) UBS’s culture was one of complete lawlessness and fuck-around-ery, or (3) both of those things are true and reinforce each other?,” and per the Journal the answer is fascinatingly (3).
I’ve occasionally said that Hayes made a career of Libor manipulating but that’s not entirely right. He started at RBS and, per the Journal‘s account,1 spent his time there mainly being smart and dressing “like a college student — with washed out jeans, a polo shirt and sometimes a threadbare sweater” rather than IMing people to ask them to fix Libor. (That, at RBS, seems to have come later.) Then he moved to UBS: Read more »
That’s them up there on the giant logo. Read more »
It’s getting to be a struggle to be amused by Libor manipulation chats. RBS took its lumps today, and the CFTC and FSA orders are full of quotes, and you can read them in various round-ups, but, meh. Even Bart Chilton is bored; today’s imagery (“sends a signal to those who would monkey around with benchmark rates … much more than a slap on the wrist …”) is a letdown after his UBS masterpiece (“Financial sector violations are hurtling toward us like a spaceship moving through the stars”) just a few weeks ago. I get it! Everyone manipulated Libor! In writing! And then they were like “heh, fukin awexome man, u manipluated libor, gud work, i sexx u now, w champain.” Fabulous.1
Part of why RBS provides less delight than its predecessor Libor-settlers is that RBS made use of the oldest and most reliable way to avoid typos: not typing. From the CFTC order: Read more »
The Libor scandal’s little brother, the Euribor scandal, is different from the Libor scandal in one important way. With Libor, banks are asked where they can borrow, and so if they can borrow at 2.5% and submit 2.4% then they’re lying. With Euribor, banks are asked where a prime bank can borrow, and so if they can borrow at 2.5% and submit 2.4% then … I mean, then who knows? Maybe they’re not prime? What’s a prime bank? This imprecision made Euribor impossible to manipulate, for some shady tautological meaning of “impossible to manipulate,” and so everyone felt very clever about avoiding scandals until they didn’t.
So when Libor rates were kept artificially low in 2007-2008, as banks tried to avoid seeming weak by submitting high rates: that was fraud. But when Euribor rates were kept artificially low, that was defensible. The intuition would be “well, last year we could all borrow at 3%, this year most of us can borrow at 4%, but we don’t look as prime as we used to. The best of us can still borrow at 3%, so Euribor = 3%.” That’s the intuition behind this amusing Banca d’Italia working paper by Marco Taboga:
Euribor rates are averages of survey responses by banks that are asked the following question: what is the interest rate that, to the best of your knowledge, a prime bank would charge another prime bank on an unsecured loan? The keyword in this question is “prime bank”. Before the crisis started, the concept of prime bank was probably rather unambiguous: there were dozens of large and internationally active banks that enjoyed AAA ratings and had tiny CDS premia (around or below ten basis points); any one of these banks would be easily recognized as a prime bank. During the crisis, however, most of these banks experienced deteriorations in their credit ratings and surges in their credit spreads. Which of them are still to be considered prime? In the absence of a standard de
finition of prime bank, this is a question that calls for quite a bit of subjective judgement. Therefore, it is conceivable that after 2007 Euribor rates might have been influenced also by changes in the survey respondents’ perception of what a prime bank is. This paper provides empirical evidence in favor of this hypothesis.
The empirical evidence is more suggestive than definitive, and the effects are more visible post-2008 than during the crisis, but still. Here’s the picture: Read more »
The Wall Street Journal story today about the next Libor domino to fall – RBS, which will be coughing up $700mm or so to regulators in the next few weeks – is full of quietly hilarious lines, perhaps none more so than the Journal‘s deadpan clarification that “the Justice Department has the power to file criminal charges without the bank’s blessing.” For sheer backwardness, though, I think it’s hard to top this:
As part of UBS’s settlement last month, the Swiss bank’s Japanese unit pleaded guilty to wire fraud, a felony. Justice Department officials were heartened by the lack of a negative reaction in the markets and among regulators around the world to UBS’s guilty plea. Before the settlement deal, some officials had worried it could destabilize the bank. That has emboldened officials to pursue similar actions against banks like RBS, according to a person familiar with the matter.
The way a lot of people – sometimes even people at the Justice Department! – think about criminal law goes something like this:
- If you do something naughty, we will charge you with a crime.
- If you are convicted of that crime, bad things will happen to you.
- You don’t want bad things to happen to you.
- So you won’t do anything naughty.
This is called “deterrence.” All of the parts of it are important: if you are convicted of a crime and bad things don’t happen to you, then the whole system is mostly pointless. When the Justice Department is “heartened by the lack of a negative reaction” to a criminal conviction – when they’re like “yay, no deterrent effect!” – then … then … gaaah. Read more »
Is it just obviously true that if (1) you had a Libor-based loan or swap or whatever, (2) Libor was intentionally manipulated by a bank or a scheming cabal of banks, and (3) that manipulation moved Libor against you and cost you money, then (4) you should be able to sue those banks to get back that money? Maybe? But then what do you do about this?
The preliminary analysis of individual quotes from panel banks shows that some anomalies can be found in the submissions, despite Thomson Reuters sanity checks. These anomalies can be seen as fat finger errors. For example on 12 June 2004, Bank 30 provided quotes between 44% and 55.5% for all tenors, and on 14 August 2006, the same bank provided quotes of 66% for a range of maturities (1 week to 3 weeks and 2 months to 5 months) as indicated in Chart 2.
That’s from the European Banking Authority – European Securities and Markets Authority report and recommendations on what to do about Euribor, a slightly less corrupt Continental analogue of Libor overseen by the European Banking Federation. Euribor was not, you’ll be pleased to know, 44% for any tenor on any date in 2004, but some of these fat finger errors do seem to have moved Euribor, though by mostly trivial amounts. Read more »
Like many of its peers in the banking world, RBS used to make a habit of manipulating Libor (among other things). And, as recent reports suggest, the Royalest Bank of Scotland is probably going to be forced to cough up £300m (and fire a couple execs) to convince the government everyone is very sorry and it won’t happen again. How does the bank, which has not had a money-making quarter since the financial crisis,* plan to come up with the cash? By 1) taking back bonuses that were already paid out to people who were involved in the scandal and 2) reducing everyone‘s bonus this year. Read more »