October 20, 2017

DealBook: Britain Charges 2 Former Brokers in Libor Inquiry

David Green, director of the Serious Fraud Office in London.Andrew Testa for The New York TimesDavid Green, director of the Serious Fraud Office in London.

LONDON – British authorities on Monday charged two former brokers at RP Martin Holdings with fraud as part of a widening investigation into the manipulation of global benchmark interest rates.

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The Serious Fraud Office said Terry J. Farr was charged with two counts and James A. Gilmour with one count of conspiracy to defraud. The announcement comes one month after Tom A.W. Hayes, a former UBS and Citigroup trader, was charged with eight counts of fraud in what was the first criminal case in Britain linked to the far-reaching manipulation of the London interbank offered rate, or Libor.

Mr. Farr, 41, and Mr. Gilmour, 48, “attended Bishopsgate police station this morning where they were each charged by City of London police,” the fraud office said in a statement. Mr. Farr, Mr. Gilmour and Mr. Hayes were arrested in December but released on bail pending further investigation.

Libor Explained

Since taking over the fraud office as director last year, David Green has made the Libor case one of his priorities, arguing that a successful and fast-moving investigation was needed to restore trust in London as a financial center. British authorities had previously taken a back seat to United States authorities in the Libor investigation, but the recent charges signal a shift in momentum.

Mr. Hayes has already appeared in a London court twice since he was charged, and he is scheduled to attend a hearing in October when he may enter a plea. Andrew Honnor, a spokesman for RP Martin, declined to comment on the charges. Lawyers for Mr. Farr and Mr. Gilmour could not be reached immediately for comment.

Article source: http://dealbook.nytimes.com/2013/07/15/two-more-charged-in-libor-investigation/?partner=rss&emc=rss

DealBook: Setting Aside More Cash for Legal Woes, Deutsche Bank Cuts 2012 Profit

FRANKFURT — Deutsche Bank on Wednesday revised its 2012 profit sharply downward as it set aside more money to cover the potential cost of legal proceedings

Deutsche Bank, Germany’s largest lender, set aside an additional 600 million euros ($775 million) to cover legal problems, reducing its pretax profit for 2012 by the same amount. As a result, net profit for the year was 291 million euros, about 400 million euros less than the bank reported on Jan. 31.

Like many big European institutions, Deutsche Bank, which is based in Frankfurt, faces a raft of legal woes.

Deutsche Bank is dealing numerous lawsuits related to its sales of mortgages and mortgage-related derivatives in the United States before the financial crisis. Ronald Weichert, a Deutsche Bank spokesman, cited those suits as the main reason for setting aside more money for legal expenses.

The bank has also been ensnared by the global investigation into rate manipulation. In November, Deutsche Bank said it had set aside money for potential penalties related to the rate-rigging case. Now, it appears the German financial firm is increasing the buffer, partially in response to the string of recent settlements.

In February, Royal Bank of Scotland agreed to pay American and British regulators $612 million to settle claims that it rigged the London interbank offered rate or Libor. Last year, the Swiss bank UBS agreed to a $1.5 billion settlement and Barclays agreed to pay $450 million. The banks are also likely to face civil suits from people who paid more interest than they should have because of Libor manipulation.

In total, Deutsche Bank has set aside 2.4 billion euros in 2012 to cover possible judgments and other litigation costs. The legal expenses, the bank said, would not affect the dividend of 75 euro cents per share, which was announced in January.

Deutsche Bank was one of the few large German banks to avoid taking a direct government bailout during the financial crisis, and it is the only German bank able to compete in the same league as large American and British investment banks.

But Deutsche Bank continues to struggle with a daunting array of legal proceedings and official inquiries related to its behavior during the boom years. The bank’s co-chief executives, Anshu Jain and Jürgen Fitschen, have cut back on bonuses and taken other steps they say will discourage excessive risk-taking and unethical or illegal behavior in the future.

Article source: http://dealbook.nytimes.com/2013/03/20/deutsche-bank-cuts-2012-profit-and-sets-aside-more-cash-for-legal-woes/?partner=rss&emc=rss

DealBook: British Regulators Plan Changes to Libor Oversight

Martin Wheatley, managing director of the Financial Services Authority, the British regulator that will conduct the review into the rate-setting process.Jerome Favre/Bloomberg NewsMartin Wheatley, managing director of the Financial Services Authority, the British regulator that will conduct the review of the rate-setting process.

LONDON — The system at the center of a rate-rigging scandal is set to be overhauled as regulators respond to public anger over the manipulation of the London interbank offered rate, or Libor.

Martin Wheatley, the regulator in charge of a plan backed by the British government to restructure the rate-setting process, outlined steps on Friday that could lead to wholesale changes to Libor, which is used as a benchmark rate for more than $360 trillion of financial products, including mortgages and loans.

The changes may include the replacement of the current system, which is overseen by the British Bankers’ Association, a trade body, with one overseen by government officials. They will also most likely make it a criminal offense to manipulate benchmark rates.

“The existing structure and governance of Libor is no longer fit for purpose, and reform is needed,” said Mr. Wheatley, who is managing director of the Financial Services Authority, the British regulator. “Trust in a vital part of the financial system has been badly damaged, and timely action is needed to restore it.”

The tough words came after one of Britain’s biggest banks, Barclays, agreed to a $450 million settlement with American and British officials after some of its traders and senior executives were found to have manipulated the rate for financial gain.

A number of other global financial institutions, including Citigroup and HSBC, are under investigation for their roles in the scandal. Analysts estimate that the combined fines and penalties for the financial services industry may exceed $20 billion.

Mr. Wheatley’s review will produce recommendations in late September about how the rate could be changed.
On Friday, the British regulator said the inquiry might lead to the use of actual trading data to set the daily benchmark rate.

Currently, a number of banks are polled each day about what their lending costs would be if they tapped the markets for financing. During the recent financial crisis, so-called interbank lending between firms was sharply curtailed, which led bank executives to submit incorrect data for Libor, according to regulatory filings.

“Libor is also intended to represent unsecured interbank borrowing costs for a range of maturities, but as this type of lending has severely declined since the financial crisis, submissions are more heavily reliant on judgment,” Mr. Wheatley said.

The review will focus on potential criminal sanctions against individuals who manipulate the rate. American and British authorities are considering the prosecution of traders implicated in the scandal, and European officials want to write new legislation to make the manipulation of Libor and other benchmark rates a criminal offense.

The overhaul of Libor will also involve increased governance of the rate-setting process, after authorities found deficiencies in how the system was overseen.

In discussions dating back to 2008, American and British central bankers had raised concerns with the British Bankers’ Association about how the rate was governed. In response, authorities forced the trade body to increase the auditing of banks’ Libor submissions from late 2008 to improve transparency.

“Any new governance framework should ensure that the compilation process itself is subject to a much greater degree of independence, transparency and accountability,” Mr. Wheatley said on Friday.

British authorities said they would work with their American and other international counterparts as part of the wide-ranging review.

Banks are expected to provide feedback on the potential changes by early September.

Because the benchmark rate underpins trillions of dollars of financial products worldwide, any changes to Libor would be phased in over several years, Mr. Wheatley said.

With regulators continuing their investigations into the activities of global firms, banks are likely to face pressure to support the changes.

“The past few months have presented a series of very significant reputational challenges for the financial services industry,” Mr. Wheatley said. “It’s clear from the reaction to the Libor scandal that consumers think it’s important.”

Article source: http://dealbook.nytimes.com/2012/08/10/british-regulators-plan-major-overhaul-of-rate-system/?partner=rss&emc=rss

DealBook: British Regulators Plan Major Overhaul of Rate System

Martin Wheatley, managing director of the Financial Services Authority, the British regulator that will conduct the review into the rate-setting process.Jerome Favre/Bloomberg NewsMartin Wheatley, managing director of the Financial Services Authority, the British regulator that will conduct the review into the rate-setting process.

LONDON – The system at the center of the rate-rigging scandal will be overhauled as regulators respond to public anger over the manipulation of the London interbank offered rate, or Libor.

Martin Wheatley, the British regulator in charge of overhauling the rate-setting process, outlined plans on Friday that could lead to wholesale changes to Libor, which is used as a benchmark rate for more than $360 trillion of financial products, including mortgages and loans.

The reforms may lead to the scrapping of the current system, which is overseen by the British Bankers’ Association, a trade body, and making it a criminal offense to manipulate benchmark rates.

“The existing structure and governance of Libor is no longer fit for purpose and reform is needed,” said Mr. Wheatley, who is managing director of the Financial Services Authority, the British regulator. “Trust in a vital part of the financial system has been badly damaged and timely action is needed to restore it.”

The tough words from British authorities come after one of the country’s biggest banks, Barclays, agreed to a $450 million settlement with American and British officials after some of its traders and senior executives were found to have manipulated the rate for financial gain.

A number of other global financial institutions, including Citigroup and HSBC, are under investigation for their role in the scandal. Analysts estimate the combined fines and penalties for the financial services industry may total more than $20 billion.

Mr. Wheatley is in charge of a British government review of the Libor-setting process, which will offer recommendations in late September about how the rate could be changed.

On Friday, the British regulator said the inquiry was likely to lead to major changes to Libor, including the use of actual trading data to set the daily benchmark rate.

Currently, a number of banks are polled each day about what their lending costs may be if they tapped the financial markets for financing. During the recent financial crisis, so-called interbank lending between firms was drastically curtailed, which led bank executives to submit incorrect data for Libor, according to regulatory filings.

“Libor is also intended to represent unsecured interbank borrowing costs for a range of maturities, but as this type of lending has severely declined since the financial crisis, submissions are more heavily reliant on judgment,” Mr. Wheatley said.

The review will center on potential criminal sanctions against individuals that manipulate the rate. American and British authorities are currently considering the prosecution of traders implicated in the scandal, though European officials want to write new legislation to make the manipulation of Libor and other benchmark rates a criminal offense.

The overhaul of Libor also will focus on increasing governance of the rate-setting process, after authorities found deficiencies in how the system was overseen. In discussions dating back to 2008, American and British central bankers had raised concerns with the British Bankers’ Association about how the rate was governed. In response, authorities forced the trade body to increase the auditing of banks’ Libor submissions from late 2008 to improve transparency.

“Any new governance framework should ensure that the compilation process itself is subject to a much greater degree of independence, transparency and accountability,” Mr. Wheatley said on Friday.

British authorities said they would be working with American and other international counterparts as part of the wide-ranging review. Banks are expected to provide feedback on the potential reforms by early September.

With regulators continuing their investigations into the activities of global firms, banks are likely to face pressure to support the changes to Libor.

“The past few months have presented a series of very significant reputational challenges for the financial services industry,” Mr. Wheatley said. “It’s clear from the reaction to the Libor scandal that consumers think it’s important.”

Article source: http://dealbook.nytimes.com/2012/08/10/british-regulators-plan-major-overhaul-of-rate-system/?partner=rss&emc=rss

DealBook: British Official Backs Central Bank’s Role in Rate Scandal

3:53 p.m. | Updated

Paul Tucker, a Bank of England official, testified before a British parliamentary committee on Monday.BBCPaul Tucker, a Bank of England official, testified before a British parliamentary committee on Monday.

LONDON – Under sharp questioning by political leaders on Monday, Paul Tucker, the deputy governor of the Bank of England, defended the central bank in light of the interest rate manipulation scandal that has engulfed Barclays.

Mr. Tucker rebutted allegations by Barclays’ officials that the central bank was well aware of the manipulation of rates and did nothing to stop it.

Robert E. Diamond Jr., the former chief executive of Barclays, resigned because of the scandal and told the same committee last week that senior government officials had been repeatedly told about efforts to influence key interest rates but did nothing to intervene.

Mr. Tucker testified that while senior officials had maintained regular contact with senior managers at Barclays after the collapse of Lehman Brothers in 2008, he was not informed of the effort to manipulate the London interbank offered rate, or Libor. The rate is used as a benchmark for trillions of dollars of corporate loans, home mortgages and derivatives around the world.

“I was not aware of allegations of lawbreaking until the last few weeks,” Mr. Tucker said during more than two hours of questioning.

Mr. Tucker, who is a front-runner to replace Mervyn A. King as the head of Britain’s central bank next year, appeared confident in the initial part of his testimony, but became increasingly anxious as politicians queried him on his role in the scandal.

He added that the Bank of England had continued to use the rate to underpin its multibillion-dollar credit facilities for local banks throughout the financial crisis. The British government lent firms more than $310 billion as part of its so-called Special Liquidity Scheme from 2008 to 2011.

Despite the Bank of England’s actions, British politicians criticized Mr. Tucker for not taking a more active role in policing. When asked by politicians whether he was confident that the Libor manipulation had now stopped, Mr. Tucker wavered.

“I can’t be confident about anything after learning about this cesspit,” he replied.

Barclays agreed in late June to pay about $450 million to settle accusations from United States and British authorities that its traders and senior executives had manipulated the rate.

Amid concerns that senior officials may have directed Barclays to alter its Libor submissions, British politicians on Monday focused their questioning on a conversation Mr. Tucker had with Mr. Diamond at the end of October 2008.

In his testimony, Mr. Tucker said the worries from authorities were linked to fears that the financial markets might perceive Barclays to be at risk if its Libor submissions continued to be higher than those of other international banks.

The British official said his phone call to Mr. Diamond was to remind the Barclays chief that people in the markets were questioning whether the British bank had access to financing.

“I wanted to make sure that Barclays’ day-to-day funding issues didn’t push it over the cliff,” Mr. Tucker said.

E-mails released by the Bank of England before Mr. Tucker’s testimony revealed that senior British officials were worried about banks’ access to the financial markets in the aftermath of the collapse of Lehman Brothers.

“We are [very] concerned that U.S. rates are tumbling but we remain stuck,” Jeremy Heywood, a senior British civil servant, told Mr. Tucker in an e-mail on Oct. 22, 2008.

Mr. Tucker also was in almost daily contact with senior Barclays executives during the final weeks of October, 2008, according to the documents.

“These were completely extraordinary times,” Mr. Tucker said. “Two banks had been taken under the government’s wing, so Barclays was next in line.” During that period, the British government provided multibillion-dollar bailouts for Royal Bank of Scotland and Lloyds Banking Group.

He contacted Mr. Diamond on Oct. 25, 2008, saying he was “struck” that Barclays was paying a high interest rate on its loans, even though they were backed by British government guarantees. Mr. Tucker also asked to meet Mr. Diamond to discuss the financing issues.

A few days later, Mr. Diamond sent a separate e-mail to the Bank of England deputy governor with details of a 3 billion euro ($3.7 billion) bond that Barclays had issued, in an effort to quell officials’ fears that the British bank was having financing problems.

“Investor confidence is slowly (very slowly) returning,” Mr. Diamond wrote on Oct. 30, 2008.

The European Commission also waded into the fray on Monday after Michel Barnier, the financial services commissioner, said he would propose amendments to draft market abuse legislation that would outlaw the manipulation of Libor and other benchmark rates.

Mr. Tucker’s testimony was seen as being pivotal to his future career path. Mr. Tucker, 54, has been with the Bank of England for more than 30 years.

After working briefly at the British bank Baring Brothers and with the Hong Kong government in the 1980s, Mr. Tucker rose inside the Bank of England to become the central bank’s deputy governor in charge of financial stability in 2009.

He also is a leading figure in global efforts to overhaul financial regulation, holding senior positions at both the Financial Stability Board and the Global Economy Meeting, whose memberships comprise officials from the world’s leading central banks.

Mr. Tucker is known for his practical knowledge of the financial markets as well as for a track record of backing extra support to finance British banks during the recent economic crisis, according to several of his current and former colleagues, who spoke on the condition of anonymity.

Yet the Libor scandal has hurt Mr. Tucker’s reputation. Individuals connected to the Bank of England have voiced concerns that he missed signs that rate manipulation was happening.

In November 2007, for example, Mr. Tucker headed a committee meeting at the central bank in which, according to the meeting’s minutes, some officials raised questions that banks were submitting lower Libor rates than what they could obtain from the market, a process called lowballing.

“This doesn’t look good, Mr. Tucker,” Andrew Tyrie, the chairman of the parliamentary committee, said. “In these minutes, we have what appear to any reasonable person as the lowballing of rates.”

Article source: http://dealbook.nytimes.com/2012/07/09/british-official-defends-central-banks-role-in-interest-rate-scandal/?partner=rss&emc=rss