Baltimore: Not taking it from the Banks (Photo credit: Wikipedia)

From the Guardian:

A little over two years ago, Stephanie Rawlings-Blake had never heard of Libor. The mayor of Baltimore had plenty of other things to keep herself occupied. Elected in 2010, she was dealing with the aftermath of a financial crisis that had left her city with the budget deficit of $120m and the cost of cleaning up the worst two-day snowstorm in the city’s history. And then she found out the credit crunch had come back to take another bite out of the city’s finances.

Baltimore is lead plaintiff in a class action lawsuit that alleges that banks including Barclays, Bank of America, HSBC, JP Morgan and UBS conspired to fix a set of key interest rates – the London Interbank Offered Rate, or Libor – costing the city millions in the process. So far, the Libor scandal has played out mostly under the radar in the US. But now it is gaining traction in Washington, and Baltimore’s suit is putting a human face on a scandal legal experts predict could end up being the most costly of the credit crisis.

Firefighters, services for the elderly, school programmes – all these and more are being cut as a direct result of the actions of colluding bankers, Rawlings-Blake claims.

According to the court documents, Baltimore bought “tens of millions of dollars worth of interest-rate swaps” during the period when the alleged fixing took place. The suit, filed with top Washington law firm Hausfeld, alleges that between August 2007 and May 2010 the defendants conspired to suppress Libor below the levels at which it would have been set had they accurately reported their borrowing costs. Those manipulations had “severe adverse consequences” for Baltimore and others, according to the suit. Other cities are watching carefully and a raft of litigation is expected in the US.

The city had no choice but to fight, said Rawlings-Blake. “We are faced with closing fire companies, closing recreational centers … We have services that have been cut year after year; services that people depend on. Opportunities for young people, the cleanliness of the city: everything is affected by the budget,” she said.

“We can’t afford to leave money on the table,” she said.

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Anger, British style

By Ben Cohen: The banking crisis in 2008 should have resulted in prison sentences for hundreds of Wall St executive and regulators responsible for decimating the global economy. Thus far, no major executive or government official has been carted of to jail – a horrifying indicator of just how corrupt the US government is. Both political parties in America refused to punish banks for their extraordinary behavior, and Wall St wields as much power today as it did in 2007. While there was enormous public outrage over the crisis, elected officials essentially pretended to get angry, then did nothing. The crisis exposed the truth about who runs the world – and it isn’t national governments working for the public interest.

In Britain, another serious  banking scandal has been uncovered, and given the public’s reaction to it, the consequences could actually mean something this time around. Matt Taibbi provides the background:

The furor is over revelations that Barclays, the Royal Bank of Scotland, and other banks were monkeying with at least $10 trillion in loans (The Wall Street Journal is calculating that that LIBOR affects $800 trillion worth of contracts).

The banks gamed LIBOR for two semi-overlapping reasons. As noted here last week, there were instances of Barclays traders badgering the LIBOR submitters to “push down” rates in order to fatten their immediate bottom lines, depending on what they were trading or holding that day. They also apparently rigged LIBOR downward in order to produce a general appearance of better health, essentially tweaking their credit scores a few ticks upward.

Most intriguingly, or perhaps disturbingly, there were revelations last week that Bank of England deputy Governor Paul Tucker had a conversation with Diamond at the peak of the crisis in 2008. The conversation reportedly left Diamond, and subsequently his traders, with the impression that the bank had carte blanche to rig LIBOR downward in order to help allay spiraling public fears about the banks’ poor financial health.

The British public is taking the Barclay’s/Libor banking scandal extremely seriously. The press is all over it, and with a criminal investigation underway, it could lead to some very high profile heads rolling. Here was Mervyn King, Governor of the Bank of England’s take:

It is time to do something about the banking system…Many people in the banking industry are hardworking and feel badly let down by some of their colleagues and leaders. It goes to the culture and the structure of banks: the excessive compensation, the shoddy treatment of customers, the deceitful manipulation of a key interest rate, and today, news of yet another mis-selling scandal.

As Taibbi writes, King “Responded the way a real public official should (i.e. not like Ben Bernanke), blasting the banks.”

What’s interesting about the scandal is that the story has barely made the headlines in the US, despite it having extremely serious ramifications. Writes Robert Reich in the Guardian:

It’s becoming apparent that Barclays’ reach extends far into the US financial sector, as evidenced by its $453m settlement with American as well as British bank regulators, and the US justice department’s active engagement in the case. Even by American standards, the Barclays traders’ emails are eyepopping, offering a particularly a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks. (Bob Diamond, the former Barclays CEO, says the emails made him “physically ill” – perhaps because they so patently reveal the corruption.)Most importantly, Wall Street will almost surely be implicated in the scandal. The biggest Wall Street banks – including the giants JP Morgan Chase, Citigroup and Bank of America – are likely to have been involved in similar manoeuvres. Barclay’s couldn’t have rigged the Libor without their witting involvement.

The difference in the reaction to the scandal between Britain and America – two countries where the financial sector wields more power than anywhere else in the world – is quite revealing. As Yves Smith notes, both major political parties in Britain are not beholden to banks, meaning politicians actually ask serious questions and can force government to act:

The Labor party in England really does represent different interests than the Tories, and is willing to go after the Tories and their allies in a much more persistent manner than our Dems, who ultimately depend on the same funding sources as Republicans. In England, as the News International scandal showed, there is the possibility of real amplification: of media discoveries being fed into political investigations, which in turn lead to more media ferreting. The fact that someone who seemed to have such a lock on power as Rupert Murdoch could be cut down is no doubt a bracing message to the British press, that they have infuence that for the most part they have failed to exercise effectively. So, ironically, a country where banking is a much larger percentage of GDP than the US may be the one where banking misconduct is finally unearthed and at least some of the perps suffer. And that would show our own officials’ failure to act to be the disgrace that it is.

In Britain, there is still a belief that government should, and can act on the behalf of the public, and that is reflected in the political dialogue that seems completely alien to Americans. Here was Ed Miliband, leader of the Labour Party on the scandal today:

“Last September I said to the Labour party conference that Britain needed a different kind of economy. An economy based not on the short-term, fast buck, take-what-you-can culture we see too much of in our banks today. But on long-termism, patient investment, and responsibility shared by all.

“Today I am going to tell you what a better banking system would look like. I will describe the first steps towards moving from the casino banking we have to the stewardship banking we need.

“It will mean root-and-branch change for our banks if we are to deliver real change for Britain”

While Obama has scolded banks on occasion, there has never been a promise to fundamentally change how they operate. Americans have long given up on the idea that the government works in their interest and simply moves on when astonishing corruption is unearthed. The media knows that attacking major power centers like the financial sector can have serious ramifications, so they rarely move unless the scandal is so blatant it has no choice. The British press go out of their way to uncover corruption whereas the US press simply reacts as events unfold (anyone remember a major scandal Fox News or MSNBC uncovered in recent times?). This culture pervades public, political and media circles and it leads to dangerous apathy that severely harms public policy. With an apathetic media comes an apathetic public, and with an apathetic public, there is no pressure on government to behave responsibly. It’s a vicious cycle that feeds itself, and only a real sense of public anger will change the status quo. While the Brits could learn a thing or two about fixing their economy from the US, Americans could learn a thing or two about getting angry from their Trans-Atlantic cousins.

It’s time to get mad America, British style.

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Former Barclays Chief Executive Bob Diamond arrives at Parliament on July 4, 2012 in London, England. (Image credit: Getty Images via @daylife)

by Cora Currier: Last week, the British bank Barclays was slapped with $450 million in fines and penalties for manipulating information used to set a critical interest rate.

Settlements filed by government regulators in the U.S. and the U.K. show this manipulation happened in two ways: first, Barclays’ traders attempted to steer rates up or down in order to benefit trades they had made to profit off of those rates. Separately, the filings show that during the financial crisis, Barclays tried to counter reports that it had financial troubles by changing the interest rate it reported.

If you’re just catching up to this, here’s some background on the scandal, and how we’ll likely see government action on other banks besides Barclays.

What are these interest rates? How could one bank manipulate them?

The Libor, or London Inter Bank Offered Rate, is a short-term interest rate that’s meant to reflect the cost of borrowing between banks. A panel of banks submits estimates daily to a trade group, the British Bankers’ Association. Thomson Reuters compiles an average rate for them, discarding any very high or low submissions. That rate is used to set rates for an estimated $360 trillion worth of financial products, all the way down to consumer loans and mortgages. (An analogous process sets the Euribor, for Eurozone banks. For help cutting through all the jargon, see this helpful explainer from American Public Media.)

And why did Barclays traders want to mess with them?

Emails quoted by government regulators show Barclays traders asking employees in charge of submitting estimates for Libor and Euribor to go low or high on a given day (sample: “No probs2026low it is today” and “Come over one day after work and I’m opening a bottle of Bollinger! Thanks for the libor.”) Some of the attempts involved former Barclays traders at other banks.

The traders wanted to influence the rates in order to profit on positions they had taken in particular trades and to benefit Barclays’ derivatives portfolio as a whole. Emails and other records show that this occurred frequently from 2005 to 2007 and occasionally until 2009. It’s not clear when, and by how much, the traders’ requests actually affected the rates, though the U.S. Justice Department says they sometimes did.

Robert Diamond, Barclays’ CEO, has called these actions “reprehensible” and the bank maintained in a statement prepared for a British parliamentary committee that no one “above desk supervisor level” knew about it at the time. The government’s complaints fault Barclays for not setting controls on how the Libor was submitted.

Barclays’ other Libor problem

Much attention’s been paid to the scheming traders and their emoticon-filled emails but regulators’ complaints also focus on another aspect of Libor manipulation: How Barclays tried to shore up market confidence in the bank’s stability during the financial crisis.

As the filings detail, in 2007, Barclays started submitting higher estimates for the Libor, saying they reflected rocky market conditions. But relative to other banks, which were still submitting low rates, Barclays looked risky. The bank maintains it was hamstrung because other banks were going artificially low. “A number of banks were posting rates that were significantly below ours that we didn’t think were correct,” Diamond told a committee of British lawmakers Wednesday.

According to regulators, Barclays management issued a directive that Barclays should not be an “outlier,” and that submitters should lower their estimates to bring Barclays “within the pack.”

In October 2008, with the financial crisis at full bore, Barclays was again on the higher end of rate submissions. That month, according to filings, a senior Barclays manager spoke with a Bank of England official about Libor rates, and the idea that they might be artificially low. Hearing of this conversation, other Barclays managers “formed the understanding” that the Bank of England wanted Barclays to lower its submissions.

This week, Barclays released an email confirming the conversation was between Diamond and Bank of England’s deputy governor Paul Tucker. It was another Barclays manager, Jerry del Missier, who determined what he thought Tucker’s comments meant, Barclays says.

On Wednesday, Diamond maintained he did not know about the artificial rate-lowering until the settlement documents were released last month.

The Barclays fallout so far

Barclays settled for approximately $450 million, of which $160 million goes to the U.S. Justice Department, $200 million to the Commodity Futures Trading Commission, and the rest to the U.K.’s Financial Services Authority. Barclays’ chairman resigned Monday, shortly followed by Diamond and del Missier. As part of the agreement with the Justice Department, Barclays admitted to a set of facts, which may help private lawsuits over Libor manipulation, as this New York Times legal explainer lays out. (Here’s the Justice Department’s “statement of facts,” as well as orders of settlement from the CFTC and the FSA).

The Serious Fraud Office in Britain is considering a criminal investigation and the Justice Department could also potentially bring charges against individuals at the bank.

A problem bigger than Barclays

The Barclays penalty is the first to result from a multi-agency investigation into Libor meddling at more than a dozen banks that reaches back to 2007.

The investigation’s next steps hinge on a few questions: Which other banks were traders at Barclays communicating with when they attempted to steer rates? Was similar behavior happening at other banks? And were other banks artificially suppressing rates during the financial crisis?

In his testimony, Diamond stuck by the line that everybody was doing it. And indeed, the revelation that banks might have tried to keep their rates artificially low during the crisis isn’t altogether new2014in 2008, the Wall Street Journal reported that banks were submitting much lower rate estimates than other market measures would have suggested. In 2008, the British Bankers’ Association said it had received suggestions that banks were exhibiting “herd” behavior in setting low rates.

The Washington Post notes that a manipulated Libor doesn’t just have repercussions for investors and borrowers, but also for regulatory efforts; by keeping rates low during the financial crisis, the banks were trying to quell concerns about the health of the banking system and “stave off calls for additional regulation.”

So who else is being investigated?

Revelations about other banks have been trickling out over the past year:

· UBS previously made agreements to cooperate with several international investigations in exchange for leniency on potential criminal charges.

· Citigroup was also a target of investigation. Earlier this year, it emerged that a few traders at Citigroup and UBS tried to manipulate Libor rates for the Yen.

· The Times of London reported that Royal Bank of Scotland could soon be hit with a fine of up to $150 million for related charges.

· Bank of America also reportedly received a subpoena last year from regulators as part of the investigation. JPMorgan Chase, Credit Suisse, HSBC and others were also on the Libor-setting panel during the period being investigated.

· Last fall, European regulators seized documents from Deutsche Bank and others regarding manipulation of the Euribor.

Private lawsuits over Libor are already underway. Last summer, Charles Schwab filed a suit alleging anti-trust violations against many Libor-setting banks and at least one class action has been filed alleging that Libor manipulation meant banks paid “unduly low interest rates to investors.”

This article was originally published on Propublica.

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From Bloomberg:

The U.K. Serious Fraud Office opened a criminal probe into the attempted rigging of interest rates that led to a record fine against Barclays Plc (BARC), adding to pressure on banks already under investigation by regulators around the globe.

SFO Director David Green said he had decided to “accept the Libor matter for investigation” in an e-mailed statement July 6.

Politicians including Chancellor of the Exchequer George Osborne and Opposition Labour leader Ed Miliband called for a criminal probe after Britain’s second-biggest bank was fined $451 million two weeks ago in the U.K. and U.S. for submitting false Libor rates. Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier resigned over the scandal.

Barclays spokesman Giles Croot didn’t immediately respond to a voice-mail seeking comment.

The SFO joins the U.S. Department of Justice in criminally investigating how derivatives traders and rate submitters colluded to rig interbank offered rates. The U.K. Financial Services Authority is seeking civil penalties against banks and has said its criminal powers don’t include Libor rigging.

As part of the U.S. and U.K. settlements, Barclays admitted rigging the London interbank offered rate, or Libor, as well as Euribor, its equivalent in euros, as early as 2005. In testimony to Parliament last week, Diamond apologized and said 14 Barclays traders were involved.

Citigroup Inc. (C), Royal Bank of Scotland Group Plc, UBS AG, ICAP Plc (IAP), Lloyds Banking Group Plc (LLOY) and Deutsche Bank AG (DBK) are among the firms regulators are investigating. About 18 banks are surveyed as part of the process of determining Libor rates.

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Bob Diamond: Could be subject to criminal charges

From the HuffPost:

Barclays Chief Executive Bob Diamond resigned Tuesday, the biggest scalp in a financial markets scandal that has ripped through the bank’s senior management and sown the seeds for a new investigation into Britain’s banking sector.

Jerry del Missier, appointed only last month as chief operating officer, resigned hours after Diamond left and a day after the chairman announced he would step down. The bank released documents saying del Missier was responsible for ordering traders in 2008 to report dishonestly low borrowing rates because he had mistakenly concluded that the Bank of England had told Barclays to do so.

The Bank of England denies knowing of any impropriety in British banks’ way of setting their borrowing rates, but the question promises to dominate a testimony Diamond will make before a U.K. parliamentary committee on Wednesday.

The executives’ resignations, effective immediately, came a day after Chairman Marcus Agius fell on his sword. Agius will leave the company only after a new chairman is found and will lead the search for a new chief executive. He will take on Diamond’s responsibilities until a new CEO is appointed.

Barclays’ management has come under fire since the bank was fined $453 million last week by U.S. and British regulators for submitting false reports on interbank borrowing rates between 2005 and 2009. Much of that activity originated from traders in Barclays Capital, the investment banking division which Diamond headed at the time.

“The external pressure placed on Barclays has reached a level that risks damaging the franchise — I cannot let that happen,” Diamond said Tuesday in the statement accompanying his resignation. “I am deeply disappointed that the impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth.”

Britain’s Serious Fraud Office said Monday that it would decide within a month whether to pursue criminal charges in the case. The government, which has come under pressure to initiate a judge-led inquiry into the sector, also announced a parliamentary committee to investigate what went on and report by the end of the year.

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