Minggu, 01 Juli 2012

Libor scandal: 'Every bank has been up to the same kind of trick. There will be much more to come'

Libor scandal: 'Every bank has been up to the same kind of trick. There will be much more to come'

By Simon Watkins

PUBLISHED: 15:48 EST, 30 June 2012 | UPDATED: 08:42 EST, 1 July 2012


Britain's banks are reeling this weekend as almost £7 billion was wiped off their value and senior banking figures warned the industry was at a critical moment in its history.

Barclays shares fell £4.6 billion last week after it was fined £290 million by regulators on both sides of the Atlantic after it was found that traders and senior managers had tried to rig the critical London Interbank Offered rate (Libor) â€" the rate at which banks lend to each other.

Other banks are expected to be swept into the storm, with Royal Bank of Scotland thought to be facing a comparable fine. 

Barclays chief executive Bob Diamond

Under fire: Barclays chief executive Bob Diamond has waived his right to a bonus

The chief executive of one global bank who declined to be named told Financial Mail: ‘Your working hypothesis should be that every bank in the industry did some version of this same thing. There will be more to come.’

Admitting that his own bank would almost certainly face a fine, he said: ‘We simply do not know at this stage how big it will end up being.’

Another banking source said of the Libor debacle: ‘In our office we’ve been talking about whether this is possibly as bad as 2008.’

While Barclays was the biggest-falling bank share in the world last week, others took a battering. RBS fell 11 per cent, knocking £1.7 billion off its value.

It has admitted that some of its traders tried to manipulate Libor and is locked in a legal battle with a Singapore dealer it sacked for the offence. He has alleged that trying to rig Libor was common practice at the bank. RBS is contesting the case.

LIBOR GUIDE

What is Libor?

The London Interbank Offered Rate is seen by many as the most important number in banking and is what banks charge each other to borrow money.

What is it for?

It is a benchmark and is used to price a huge range of commercial contracts. Just as a tracker mortgage will state that a homeowner pays the Bank of England base rate plus a certain amount, many commercial loans and contracts specify an interest rate as Libor plus a set figure.

How is it set?

A panel of banks is asked each working day to give a figure for the rate of interest they would expect to pay to borrow money from another bank. The quotes are compared and the top and bottom quarter in the range are excluded and an average is calculated. There are different Libor rates for different currencies and terms of borrowing.

H ow can it be rigged?

The answer each Libor setter gives is not based on actual borrowing but is supposed to be an 'expert' assessment of the market price at that moment, so there is room to give a false assessment.

How could this be used to make money?

Some complex derivatives traded between banks and brokers will have a value that changes daily depending on Libor. The value of the derivatives will change depending on whether Libor goes up or down. If a trader can influence a Libor setter they might be able change the value of their market position.

Does Libor have any other significance?

How much banks charge each other to borrow money is a valuable measure of the confidence of the banking sector. A high Libor rate implies banks are more reluctant to lend to each other and a low rate means they are confident in each other.

Up to 20 banks around the world are being investigated by regulators over alleged rigging of Libor or its equivalent in other countries, such as the Tokyo Interbank Offered Rate (Tibor).

Meanwhile, dozens of financial firms from America, Canada, Europe and Japan, and all of Britain’s big lenders, have been named in legal claims lodged in US courts where investors are claiming losses from the rate-rigging scandal.

With the total amount of financial contracts pegged to Libor and similar rates estimated at £230 trillion, the potential for claims is enormous.

But Britain’s banks were also caught up in the mis-selling of interest rate swaps to small businesses.

Allegations of mis-selling these complex products, which help protect companies against interest rate movements, have been swirling for months. But on Friday the Financial Services Authority said it had found evidence of mis-selling and called on the banks to compensate those who were victims.

The total bill for the banks has been estimated at up to £1.4 billion, although Lloyds and HSBC said they believed their costs would not be material, while RBS referred to a small number of customers having been hit.

Even so, RBS chief executive Stephen Hester said on Friday he would waive his right to any bonus for 2012 as a result of the various problems at the bank, which has also suffered a major computer system crisis that left thousands of customers unable to pay bills last week. That is also expected to land RBS with a sizeable compensation bill.

Interest rate swaps were intended to allow small businesses that had taken a loan to insure against the risk of interest rates rising.

But the complex products meant that if rates fell, borrowers would be lumbered with a huge bill. In the wake of the credit crunch, rates have fallen, ironically including Libor, against which many of the hedging products are fixed.

The FSA found that some small businesses were sold inappropriate swaps and may not have been made fully aware of the risks. The regulator has said it will now ban the sale of such swaps to small businesses.

Many bankers privately say this is inappropriate as although some products were mis-sold, in principle a rate swap can be a useful tool for some companies.

But while all banks are expected to be drawn into the Libor scandal, and will face mis-selling claims over the interest rate swaps, attention is still fixed on Barclays.

Chief executive Bob Diamond, chief operating officer Jerry del Missier, finance director Chris Lucas, and Rich Ricci, the head of Barclays Capital, the group’s investment banking arm, have all waived their right to bonuses for 2012.

Calls from politicians for resignations have fallen on deaf ears and Barclays sources indicated none of its leading executives was planning to quit.

Barclays has consistently denied that Diamond is considering his position and he told City analysts on Thursday that he intended to stay on. Reports this weekend said some shareholders were agitating for Barclays chairman Marcus Agius to step down, to be replaced by non-executive director Sir

A spokesman for Barclays  denied any such move was not being considered, adding: ‘It is categorically wrong. Marcus Agius has no plans to step down.’

Agius is also chairman of the British Bankers’ Association, which oversees Libor.

Barclays shareholders have also so far stopped short of calling publicly for resignations at the bank, with many thought to be fearful that the departure of Diamond would leave a leadership vacuum. But the Libor scandal has clearly played into the hands of banking industry critics.

Reform as outlined by the Independent Commission on Banking and largely accepted by the Government in a recent White Paper is now seen as irresistible, including ring-fencing investment banking.

One banking boss told Financial Mail the industry had no choice but to accept whatever was thrown at it. ‘We are going to go through a rather dangerous phase in which some babies may be thrown out with the bath water,’ he said.

‘But I am afraid the industry can’t have much to complain about if that is the case.’

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This is how things get changed. Like in the 1970's Clocking Cars was widespread and even the most respected Main Dealers did it, until the Government decided that it was no longer acceptable and made it illegal. This Artificially Fixing of Interest Rates will be the same. The Bank of England would have known it was going on, but it would have been considered acceptable. Mind you the Base Rate of the BOE is a Joke. Banks dont have to adhere to it when lending money, in fact it seems they dont have to adhere to anything as their Code of Conduct is "Self Regulation" and the FSA, different planet.

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Well we can at least legislate to keep our streets safe as we do not appear to have had a repeat of the summer riots. It is amazing how quick the establishment were to deal with that problem! Most people would not be anti banker if we had the trust in them to provide the service and products that we need. We have allowed the banks to focus on their investment banking and trading to make the City of London the pre-eminent financial centre based on light touch regulation! So they created complex financial products which no one really understood the risks or consequences, no limits were placed on the value or volume of trading, they gambled with other peoples money to steal money off another gambler at another bank (so no wealth creation). For their efforts and because they were infallible/indispensable they demanded huge bonus packages. Now we know that they were not talented but were bankrupt of any morals/integrity and the only wealth created was their own! It may change in 2019!!!!!

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BoE is keeping the base rate suppresed for so long. Surely they should be charged as well as Barclays? Mervyn King Resign NOW!

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You are witnessing the collapse of a fiat currency. every single fiat currency in the history of mankind has collapsed, every single one of them without exception, ours is no different. ALL banks are already bankrupt so if you have given your bank an unsecured loan (your savings) you may want to start preparing your finances. This is what some people in other countries did when they were at the stage we are at now, most didnt and lost everything. once your finances are sorted have a look at what happens to the food supply during a major economic crisis. Remember a couple of months ago when we had a fuel crisis that didnt even exist, now replace the word fuel with food and you will realize why lots of people are going to go hungry when it happens.......If you think none of this can happen in britain then look up normalcy bias on wikipedia..........In case you havent noticed our government left a long time ago and we are now on our own. If you trust your government you need do nothing.

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I know how to teach them a lesson. Fine them a billion each. That way we have only give 321 billion to them to do what they want instead of 325.

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Your working hypothesis should be that every bank in the industry did some version of this same thing. There will be more to come. Correct and MANY many versions.The fines?? magically conjured up out of thin air as per usual.

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