I assume that there’s someone somewhere whose job it is to think about this, but the big Libor fine that appears to be in UBS’s future got me wondering: how do they decide how big these fines are supposed to be? In most fraud cases you can tot up how much someone stole and use that as a starting point, inflating or deflating it for different levels of evil or remorse. But that doesn’t seem to be a promising avenue in Liborgate, where the money involved is hard to calculate and mostly flowed around the manipulating banks without touching them directly. The fine-setters seem to have about four things to think about:

  • how much bad stuff did the bank do,
  • how much money did they make doing it,
  • how caught are they, and
  • how sorry are they now.

On how much bad stuff … really the point of these settlements is that you’ll never quite know. The Barclays settlement documents contain tons of delightful emails, but they’re framed by the usual prosecutorial boasting that they are “just some examples of the numerous trader requests over the years in question.” They’re a sampling thrown in for scandalous effect, not a real accounting of Barclays’ rate manipulation. For the CFTC to actually publish every instance that it discovered of rate-fixing, in a settlement, would be silly. For one thing, the settlement is designed to avoid the necessity of doing the work to get such an accounting. For another, the settlement is designed to avoid the public release of such an accounting, which would be ammunition for the private lawsuits that have sprung up around Libor.

So we’re unlikely to get a real official read on whether UBS was worse than Barclays and by how much. But the fine is obviously a clue that they were pretty bad. From David Merkel’s data they actually seem to have been middle-of-the-pack as a Libor submitter, without the extreme submissions and big swings that Barclays had. But to be fair that is in 3-month USD and part of UBS’s thing seems to have been manipulating Libor in more tenors and currencies than Barclays did. Read more »

Just because their manipulation of Libor has gotten the most notice doesn’t mean it’s the only thing like to mess with. Don’t box them into that corner, like your one-trick ponies at Barclays. Read more »

One thing that most people probably agree on is that having their instant messages, e-mails, and phone call transcripts end up court would be cause for at least a little embarrassment. Everyone’s thrown in an emoticon they aren’t proud of, some of us have used company time to chat with significant others about undergarments, and the vast majority of workers have spent a not insignificant amount of the workday talking shit about their superiors. Of course, the humiliation gets ratcheted up a notch in the case of people who ‘haha’ (and in extreme circumstances ‘hahahah’) their own jokes* which, just for example, involve habitual Libor manipulation. Tan Chi Min knows what we’re talking about:

“Nice Libor,” Tan said in an April 2, 2008, instant message with traders including Neil Danziger, who also was fired by RBS, and David Pieri. “Our six-month fixing moved the entire fixing, hahahah.”

And while having such an exchange become public would be tremendously awkward for most, you know what’s really ‘hahaha’ about this whole thing? That 1) Tan was the one who wanted people to read the above, which was submitted as part of a 231-page affidavit earlier this month and 2) He’s trying to use it as evidence that he didn’t deserve to be fired. Read more »

It’s hard to see what is news about the latest Libor news but it exists so let’s paste it here:

Royal Bank of Scotland Group Plc managers condoned and participated in the manipulation of global interest rates, indicating that wrongdoing extended beyond the four traders the bank has fired.

In an instant-message conversation in late 2007, Jezri Mohideen, then the bank’s head of yen products in Singapore, instructed colleagues in the U.K. to lower RBS’s submission to the London interbank offered rate that day, according to two people with knowledge of the discussion. No reason was given in the message as to why he wanted a lower bid. The rate-setter agreed, submitting the number Mohideen sought, the people said.

One way to conceptualize Libor is that it’s the interest rate at which banks lend to each other on an unsecured basis. This is fine as far as it goes but late 2007 was farther than it went; by that point banks were skittish about unsecured lending and Mervyn King was already conceptualizing Libor as the interest rate at which banks don’t lend to each other. But of course there are lots of rates at which banks don’t lend to each other; 714.03% per annum is, for example, a perfectly good interest rate at which I will assert banks don’t lend to each other. So King’s formulation insufficiently specifies.

But that means you need a new concept! It just does; you can’t avoid it by saying “well just try harder to say what rate you borrow at when you don’t borrow.” How do you get the new concept? Beats me; the CFTC has listed factors that were kosher to consider and they include prior Libor submissions, actual and expected central bank decisions, and “research documents,” which are all, like, things you can look at, but which are none of them information about rates you can borrow at.1 Read more »

A trader at RBS has admitted to making a fat finger trade in the EUR/CHF pair Monday, a spokesperson for the bank told Reuters. The error caused a series of algorithmic trades from other traders to flood the market, sending the pair spiking for a short period of time. The trades which took place on the EBS foreign exchange platform sent the currency pair to spike to levels just shy of 1.21, the highest levels seen in a long time…EBS daily charts showed that the euro surged to 1.20928 francs from around 1.2015 within three minutes on Monday as the algorithmic traders went berserk…Initial reports had claimed that it was RBS’s algorithms that caused the spike. However, those reports were later proven wrong. It turns out that it was a simple fat finger trade that caused the spike and algos reacted to send the pair even higher. [MarketWatch, Reuters]

  • 19 Jun 2012 at 2:20 PM

Layoffs/Hiring Watch ’12: RBS

The bad news is that 600 of the Queen’s corgis are being let go. The good news, while it probably comes as little solace to those who will no longer receive birthday chickens, is that 300 or so new ones will be hired in their place. Read more »

Sir Philip Hampton said investors who owned RBS shares before its £45.5bn bailout in October 2008 were likely to be dead before the bank’s value recovered to anything close to its pre-crisis level. “I don’t think shareholders wealth is likely to be restored any time in my lifetime or some lifetimes beyond,” said Sir Philip, who was brought in as the bank’s chairman in January 2009. [Telegraph]