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 »
Barclays’ Board May Have Banned Bob Diamond From Coming Within 200 Feet Of The Building But That Doesn’t Mean They Want To See The Poor Guy Driving Himself Around TownBy Bess Levin
Those Libor fines don’t pay for themselves! Read more »
You may not share my tastes in this sort of thing but I’m going to go ahead and give American Banker a gold star for the headline “Libor-Rigging Set Interest Rates Too Low, Too High and So Low They Were Too High.” The reference is to this Journal article about the mishegas of Libor lawsuits. Since every bank seems to have manipulated Libor, and in different directions at different times, you get to sort of take your pick about what you want to sue over. And so some borrowers are suing banks for setting Libor too low, some municipal swaps counterparties etc. are suing banks for setting Libor too high, and one cable-car driver is taking the second derivative:
Carl Payne, a 72-year-old former cable-car driver in San Francisco, alleged in a federal-court suit filed in December that manipulating interest rates lower inflated margins on adjustable-rate mortgages tied to U.S. dollar Libor. The law firm acting on Mr. Payne’s proposed class action suit, Baron & Budd P.C., estimates that about a million mortgages were affected.
The interest rate on the mortgage for his condominium is based on the one-year rate plus a 2.25-percentage-point margin that is fixed over the life of the 30-year loan. Because the rate when he took out the mortgage was artificially low, Mr. Payne says, he was locked into a higher margin than he should have been.
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]
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
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 »