london interbank offered rate

DealBook: Britain Charges 2 Former Brokers in Libor Inquiry

July 15, 2013 by NewsMaker Leave a Comment

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.

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

Filed Under: Global Business Tagged With: andrew testa, libor, london interbank offered rate

DealBook: Report Faults ‘at All Costs’ Attitude at Barclays

April 3, 2013 by NewsMaker Leave a Comment

Andy Rain/European Pressphoto AgencyA branch of Barclays in London.

7:43 p.m. | Updated LONDON — The push to change Barclays from a predominantly British retail bank to a global financial giant over the last two decades created a culture that put profit before customers, according to an independent report released on Wednesday.

That review, which was ordered by the bank’s top management after a rate-rigging scandal last year, highlighted an “at all costs” attitude, particularly in the company’s investment bank, that was reinforced by a bonus system that encouraged taking risks over serving clients.

“Barclays became complex to manage,” said the report, which was overseen by Anthony Salz, former head of the law firm Freshfields Bruckhaus Deringer. “The culture that emerged tended to favor transactions over relationships, the short term over sustainability and financial over other business purposes.”

Libor Explained

Lefteris Pitarakis/Associated PressRobert E. Diamond Jr., the former chief of Barclays.
Justin Thomas/VisualMedia, via Agence France-Presse — Getty ImagesAntony P. Jenkins, chief of Barclays.

The report released on Wednesday said the push to increase profit across the bank’s operations led to potentially risky behavior that had a direct effect on the company’s reputation.

Last year, the British bank was the first global financial institution to admit wrongdoing in the rate-rigging scandal. Barclays agreed to a $450 million settlement with American and British authorities after some of its traders and senior managers were found to have manipulated the Libor.

The bank has also been implicated in the inappropriate sales of complex financial and insurance products to small businesses and retail customers that has led the British banking industry to pay billions of dollars in compensation.

The new chief executive, Antony P. Jenkins, announced a plan this year to improve the bank’s culture and profitability, including the closing of a tax planning division and the elimination of 3,700 jobs, mostly in the bank’s unprofitable European retail and business banking unit.

Mr. Jenkins also outlined efforts to end aggressive risk-taking at Barclays. In a memorandum to employees, he said staff members who were unwilling to buy into the bank’s push to rebuild its reputation should leave the bank.

Despite the move to improve how Barclays operates, it still has cultural problems, particularly related to banker bonuses, according to the independent review released on Wednesday.

“Many senior bankers seemed still to be arguing that they deserved their precrisis levels of pay,” the report said. “A few investment bankers seemed to lose a sense of proportion and humility.”

While total employee compensation at Barclays has fallen as a result of the financial crisis, pay for the bank’s top management has remained above the industry average, the report added.

In 2011, for example, compensation for the bank’s top 70 managers was 17 percent higher than that of peers at rival banks. The disparity was a result, in part, of executives moving from the investment banking unit to less well-paid jobs in other operations without an adjustment in pay to reflect their new positions, according to the independent review.

“The report makes for uncomfortable reading in parts,” the bank’s chairman, David Walker, said in a statement. “We must learn from the findings.”

Article source: http://dealbook.nytimes.com/2013/04/03/report-faults-at-all-costs-attitude-at-barclays/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: independent report, investment bank, london interbank offered rate

DealBook: R.B.S. Settlement a Burden for Britain

February 6, 2013 by NewsMaker Leave a Comment

Matt Dunham/Associated PressGeorge Osborne, Britain’s chancellor of the Exchequer.

LONDON — The British government is taking aim at an unlikely target in the latest rate-rigging case: the British government.

The $612 million settlement that the Royal Bank of Scotland reached with authorities on Wednesday over rate manipulation will leave British taxpayers liable for part of the fine.

The government still owns a 82 percent stake in the bank, which was bailed out in 2008 during the height of the financial crisis.

The British government finds itself on the other side of its case as well because the Financial Services Authority, the country’s main financial regulator, has been part of the global investigation into the manipulation of benchmark rates like the London interbank offered rate, or Libor.

The case against the Royal Bank of Scotland has been politically charged after British politicians demanded that bankers’ bonuses should be used to pay for the settlement.

“There is a legitimate concern that British taxpayers, who already have bailed out the bank, will be asked to pay for past mistakes at R.B.S.,” said Pat McFadden, a British politician who is a member of the opposition party and part of the Parliament’s Treasury select committee that oversees the country’s finance industry. On Monday, George Osborne, the chancellor of the Exchequer, also called on the bank to use bonuses to pay the Libor fine.

To help pay for the global settlement, the British bank said it would claw back past and present bonuses totaling $471 million from both the traders implicated in the rate-rigging scandal as well as from employees in the bank’s operations, particularly its investment banking unit, which have not been part of the wrongdoing.

Bank officials said the clawbacks were related to the reputational damage caused to the bank, and would also cover potential future legal liabilities. But that money will be used primarily to pay the fines levied against the bank by the United States authorities.

The Financial Services Authority’s share of the fine is expected not to come from the bonuses. The money will, in a sense, be recycled since it will go to the British government’s coffers.

One of the casualties of the Libor scandal was John Hourican, head of the firm’s investment banking division, who resigned on Wednesday. He will forgo past and present compensation worth a combined $14.1 million. Mr. Hourican, who took over the investment banking unit in 2008 and has not been implicated in the wrongdoing, will receive a one-time payout from the bank of around $1 million.

Libor Explained

“This has been a soap opera for the last four years because of the ups and downs of this job,” the bank’s chairman, Philip Hampton, told reporters on Wednesday. “The bank was in a hell of a mess.”

The taxpayer stake in the bank sets the latest deal apart from the other two big Libor settlements. Last summer, the British bank Barclays agreed to pay $450 million to settle accusations that it reported false rates. In December, the Swiss giant UBS struck a sweeping $1.5 billion deal with authorities in which its Japanese subsidiary pleaded guilty to felony wire fraud.

But despite the vested interest of taxpayers, the Financial Services Authority did not take the government’s ownership stake into consideration when reaching the settlement, according to a person with direct knowledge of the matter who spoke on the condition of anonymity.

The renewed scrutiny on the bank, however, could hinder the government’s ability to sell its stake for a profit, as private investors remain wary of the bank’s future liabilities. Since the bailout in 2008, the bank’s shares have plummeted, and are currently trading around 32 percent below the initial purchase price.

As part of plans to sell the government’s stake in the bank, Vince Cable, the British business secretary, said Royal Bank of Scotland should have been fully nationalized when it was bailed out in 2008. In a speech on Wednesday, he added that one option could be to return shares in the bank to British taxpayers.

“The early hope of reprivatization now looks a very long way off, unless at an unacceptable loss,” Mr. Cable said.

Government officials have held preliminary discussions with a number of investors about selling stakes in the Royal Bank of Scotland, according to a person with direct knowledge of the matter who spoke on the condition of anonymity.

The potential losses facing British taxpayers contrast with the $182 billion bailout of the American International Group in 2008. Over the last two years, A.I.G. issued a series of stock offerings to reduce the United States government’s ownership, generating profit of around $22 billion for American taxpayers.

Article source: http://dealbook.nytimes.com/2013/02/06/the-politics-of-the-r-b-s-settlement/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: british taxpayers, legitimate concern, london interbank offered rate

DealBook: European Regulators Propose Overhaul of Benchmark Interest Rate

January 11, 2013 by NewsMaker Leave a Comment

DealBook: Former UBS Executives Are Grilled Over Libor

January 10, 2013 by NewsMaker Leave a Comment

Tal Cohen/European Pressphoto AgencyMarcel Rohner, former chief of UBS, leaving a parliamentary hearing in London on Thursday. “I did the best I could,” he told lawmakers.

LONDON – Several former senior executives at UBS were labeled on Thursday as negligent and incompetent for failing to detect illegal activity that led the Swiss bank to pay a $1.5 billion fine to global regulators.

On the second day of hearings at the British Parliament related to the recent rate-rigging scandal, Marcel Rohner, the former chief executive of UBS, and a number of former heads of the firm’s investment bank were grilled over whether they were aware that around 40 people had altered major benchmark interest rates for financial gain.

The executives, who no longer work at the Swiss bank, denied any knowledge about the illegal activity, and said they had only found out about the investigations into the firm conducted by the United States Justice Department, the United States Commodity Futures Trading Commission and international authorities late last year.

“What we have heard are appalling mistakes that can only be described as gross negligence and incompetence,” Andrew Tyrie, a politician who leads Parliament’s commission on banking standards that is investigating wrongdoing at the firms operating in London. “The level of ignorance seems staggering to the point of incredulity.”

UBS agreed to pay the multibillion-dollar fine in late 2012 to settle allegations that some of its traders altered the London interbank offered rate, or Libor, and the euro interbank offered rate, or Euribor, to increase their own profits. The benchmark rates underpin trillions of dollars of financial products, including mortgages, worldwide.

Some UBS senior managers also tweaked the bank’s submissions to present the Swiss bank in a better financial position than it actually was, according to regulatory filings.

Libor Explained

Mr. Rohner, who led UBS from 2007 to 2009. a period when the bank wrote down around $50 billion of sophisticated credit products, said he was embarrassed and ashamed by the misconduct related to Libor.

“I did the best I could,” said Mr. Rohner, who appeared taken aback by the angry questions from the British politicians, who repeatedly called his actions incompetent and negligent.

The former UBS chief executive said the firm’s operations had become too complex before the financial crisis, which had made it difficult to keep track of potential illegal activity by some of its employees.

The parliamentary hearing focused on speculation at the beginning of the financial crisis that highlighted banks’ so-called low-balling of rates. The practice involved submitting lower rates used in setting Libor in an effort to portray the firms in strong financial health despite a severe cut in lending between global financial institutions.

Mr. Rohner and three former chiefs of UBS’s investment bank, Huw Jenkins, Alex-Wilmot-Sitwell and Jerker Johansson, all denied being aware of the rate submissions in 2007 and 2008, when the bank raised billions of dollars of new capital to shore up its own finances.

“I had the responsibility to actively seek out information about things that concerned me,” Mr. Johansson, who ran UBS’s investment bank from 2008 to 2009, told the British parliamentary hearing on Thursday. “I failed to recognize this Libor issue as being one of these issues.”

Yet British politicians refused to believe that senior executives at the Swiss bank did not know about the Libor submissions at a time when the financial markets had been focused on the short-term financing problems of the world’s largest banks.

“You are stretching belief to its limit to get us to believe that you were completely unaware,” Andrew Love, a British politician on the parliamentary committee, told the former UBS executives .

The hearing also questioned several current and former senior members of the Financial Services Authority, Britain’s financial regulator, over their actions that led to the multibillion-dollar fine against UBS, the largest financial penalty so far levied against a bank in the continuing Libor investigation.

Hector Sants, the British regulator’s former chief executive, who is set to join Barclays as head of compliance, said banks should be more proactive in detecting potential illegal behavior, and called for greater oversight of global banks that operate in London. Barclays agreed to a $450 million settlement with global authorities last year related to the Libor investigation.

British regulators said that only nine out of the 40 individuals involved in the UBS rate-rigging scandal had worked in the country’s financial services industry, and that authorities were continuing to investigate a number of firms and individuals connected to the rate-rigging scandal.

“This is not the end of the Libor story,” said Tracey McDermott, director of enforcement and financial crime at the Financial Services Authority.

Article source: http://dealbook.nytimes.com/2013/01/10/former-ubs-executives-are-grilled-over-libor/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: british parliament, london interbank offered rate, regulatory filings

DealBook: UBS Executives Questioned by Parliament Over Rate-Rigging Case

January 9, 2013 by NewsMaker Leave a Comment

Facundo Arrizabalaga/European Pressphoto AgencyAndrea Orcel, head of UBS’s investment banking unit, entered a taxi as he left a British Parliament commission on Wednesday.

LONDON – Senior UBS executives faced tough questioning from British politicians on Wednesday over a recent rate-rigging scandal that led the Swiss banking giant to pay a combined $1.5 billion fine to global authorities.

During almost three hours of testimony, Andrea Orcel, head of UBS’s investment banking unit, and the firm’s chief risk and compliance officers were questioned over why the illegal activity, conducted over six years through 2010, was not discovered earlier.

“This scandal which took place at UBS was a shocker of enormous proportions,” said Andrew Tyrie, a politician who heads up the British Parliament’s commission on banking standards, which is investigating misconduct in the country’s financial services sector.

The multibillion-dollar fines were levied against the Swiss bank last month after American, British and Swiss regulators discovered that around 40 employees at the bank had actively manipulated key benchmark rates for financial gain.

During the recent financial crisis, senior managers at the Swiss bank also adjusted the firm’s interest rate submissions to portray the bank in a healthier financial position than it actually was, according to regulatory filings.

UBS’s Japanese subsidiary pleaded guilty to fraud related to the case, which included the manipulation of both the London interbank offered rate, or Libor, and Euro interbank offered rate, or Euribor. Combined, the rates underpin trillions of dollars of financial products worldwide, including sophisticated derivatives and home mortgages.

Libor Explained

As part of the continuing case, the Justice Department has brought charges against two former UBS traders, Thomas Hayes and Roger Darin, for their roles in the illegal activity.

“These are industrywide problems,” said Mr. Orcel, a deal-making veteran who has advised on some of Europe’s biggest banking takeovers and who joined UBS last year from Bank of America. “We all got probably too arrogant, too self-convinced that things were correct the way they were. I think the industry needs to change.”

Mr. Orcel helped to broker the $97 billion acquisition of the Dutch bank ABN Amro in 2007 by a consortium of banks led by Royal Bank of Scotland. The mistimed deal played a role in R.B.S. being bailed out by the British government during the financial crisis.

The banker, who one British politician referred to as the “Ronaldo of investment banking” — a reference to the global Portuguese soccer start Cristiano Ronaldo – was asked whether he still would have supported the deal.

“Knowing what we know now,” Mr. Orcel said, “we would have advised them not to proceed.”

The British politicians peppered Mr. Orcel, UBS’s chief risk officer, Philip J. Lofts, and the firm’s global head of compliance, Andrew Williams, with questions about why the illegal activity was not discovered despite several internal audits of the bank’s trading activity.

The UBS officials acknowledged that only 18 of the 40 individuals linked to the rate-rigging scandal had been fired because of the illegal activity, though some of the implicated traders had subsequently moved to other banks before the misconduct was detected. Some employees connected to the illegal activity remained at the bank, the executives said.

The hearing also focused on the activities of Mr. Hayes, who worked at UBS from 2006 to 2009. The trader recorded around $260 million of profits during his time at the bank, though the UBS officials could not say how much of the earnings could be linked to ostensible manipulation of benchmark rates.

“His conduct was reprehensible,” Mr. Williams of UBS said on Wednesday. “We were all disgusted by it.”

When asked what steps the bank’s board had taken in the wake of the scandal, Mr. Williams said the Libor investigation had played a role in the firm’s decision to reduce its exposure to risky trading activity. Last year, the Swiss bank announced 10,000 job cuts, with a large percent of the layoffs expected in the firm’s investment bank.

“We are going to get out of much of the proprietary side of investment banking and go back to a client-focused model,” Mr. Williams told British politicians on Wednesday.

UBS is the latest global bank to be linked to the rate-manipulation scandal. Last year, the British firm Barclays agreed to pay a $450 million settlement with authorities after some of its traders were found to have altered Libor rate submissions for financial gain. Some of the bank’s senior executives, including the chief executive at the time, Robert E. Diamond Jr., resigned in the wake of the scandal.

More financial penalties are expected. The Royal Bank of Scotland has said it expects to announce an agreement with global authorities before it reports earnings in February, while Deutsche Bank of Germany has also said it had made financial provisions to cover potential fines.

Several American banks, including Citigroup and JPMorgan Chase, are also under investigation.

“This didn’t just involve traders at UBS,” Pat McFadden, a British politician said during the hearing on Wednesday. “This was a widespread practice in the banking industry. It was a serious corruption of the financial process.”

The $1.5 billion fine against UBS is the largest penalty levied so far in the five-year investigation into the manipulation of key benchmark rates, and was a new blow for the bank. Last year, UBS revealed a $2.3 billion loss related to illegal activity by a trader that led to the resignation of the firm’s former chief executive, Marcel Rohner. The bank agreed to pay a $47.5 million fine to British authorities for failing to detect the illegal trading.

UBS also agreed to pay American regulators $780 million in 2009 to settle allegations that it helped American clients evade taxes, while the bank also wrote down around $50 billion of sophisticated credit products during the financial crisis.

Mr. Rohner, several former chief executives of UBS’s investment banking unit, and senior officials from the Financial Services Authority, the British regulator, are to testify on Thursday in connection with the recent illegal activity at UBS.

Article source: http://dealbook.nytimes.com/2013/01/09/british-parliament-questions-ubs-executives-in-wake-of-1-5-billion-fine/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: benchmark rates, japanese subsidiary, london interbank offered rate

DealBook: 3 Men Arrested in Rate-Rigging Inquiry

December 11, 2012 by NewsMaker Leave a Comment

Carl Court/Agence France-Presse — Getty ImagesOffices of the Swiss bank UBS in London.

10:24 a.m. | Updated LONDON – British authorities made the first arrests in the global investigation into interest-rate manipulation, an inquiry that has ensnared the world’s biggest banks.

The Serious Fraud Office of Britain said on Tuesday that it had arrested three people in connection with rate rigging. The three men, who are aged between 33 and 47 and are British citizens, were taken into custody by police in early morning raids at their houses on the outskirts of London.

One of the people is Thomas Hayes, a 33-year-old former trader at Citigroup and UBS, according to people with knowledge of the matter. At least one of the other two men worked for R P Martin, a British brokerage firm that previously surfaced in the Canadian investigation into rate manipulation, another person briefed on the matter said.

British criminal authorities typically make arrests at the early stages of an inquiry, and the actions do not necessarily mean the individuals will be charged with any wrongdoing. A Citigroup spokeswoman declined to comment. A UBS spokesman declined to comment. A lawyer for Mr. Hayes could not immediately be identified.

Libor Explained

Regulators are now pursuing a number of criminal and civil cases.

The Royal Bank of Scotland is talks with authorities. The bank said it would likely disclose fines before its next earnings report in February.

The Swiss bank UBS is close to finalizing a settlement deal with American and British authorities. The bank is expected to pay more than $450 million to settle claims that some employees reported false rates to increase its profit. When American authorities announce their case against UBS in the coming days, Mr. Hayes is expected to figure prominently, one of the officials said.

Mr. Hayes built his reputation as a trader at UBS. He worked at the Swiss bank from about 2006 to 2009, before departing for Citigroup.

But his career at Citi was short-lived. In 2010, the bank suspended him after he approached a London trading desk about improperly influencing the Yen-denominated Libor rates, a person briefed on the matter said. He was fired in September 2010, and the bank reported his suspected actions to authorities.

UBS also implicated Mr. Hayes to authorities, according to another person briefed on the matter. The Swiss bank discovered that Mr. Hayes worked with traders at other banks to influence rates, according to officials and court documents.

Mr. Hayes emerged in court documents this year filed by Canadian authorities. The documents — collected by Canada’s Competition Bureau, the country’s anti-trust authority – highlight an alleged scheme in which Mr. Hayes and other traders colluded to push Yen Libor rates up and down. The Canadian investigation, which spans conduct from 2007 to 2010, also referenced traders at JPMorgan Chase HSBC, Deutsche Bank and the Royal Bank of Scotland.

The traders, the documents said, at times corresponded via instant messages on Bloomberg machines. While the flurry of activity took place outside Canada, the trading affected financial contracts in the country that were pegged to Yen Libor.

“Traders at participants banks communicated with each other their desire to see a higher or lower Yen Libor to aid their trading positions,” the Canadian documents said.

The traders also relied on middlemen at brokerage firms “to use their influence” on other banks that set Libor, according to the documents. The brokers included employees at R P Martin, a person briefed on the matter said.

Under British law, Mr. Hayes and the other men can be held for 24 hours. The authorities can then apply for an extension if they need more time for questioning.

The Serious Fraud Office started a criminal investigation into Libor manipulation in July, in response to the furor over the rate-rigging scandal at Barclays. The criminal investigations by the British authorities and their counterparts at the Justice Department parallel similar civil inquiries by international authorities, including the Commodity Futures Trading Commission and the Financial Services Authority, the British regulator.

The arrests come as the agency tries to repair it reputation. In April, the new director of the Serious Fraud Office, David Green, pledged overhaul the office after a series of mistakes by the organization.

Legal professionals say the appointment is a step toward rejuvenating the agency, which has lacked significant firepower to police London’s financial services section. The Serious Fraud Office has been given extra resources by the British government to pursue a criminal investigation related to Libor.

“The S.F.O. works incredibly slowly,” said a defense lawyer representing individuals implicated in the Libor inquiry, who spoke on the condition of anonymity because of the ongoing investigation. “It’s not surprising that people have been arrested. But how long it will take to lead to criminal charges is another matter.”

Azam Ahmed contributed reporting.

Article source: http://dealbook.nytimes.com/2012/12/11/three-arrested-in-connection-to-rate-rigging-scandal/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: london interbank offered rate, scand, trillions

DealBook: British Regulator Unveils Libor Overhaul

September 28, 2012 by NewsMaker Leave a Comment

Carl Court/Agence France-Presse — Getty ImagesMartin Wheatley, managing director of Britain’s Financial Services Authority, said London’s reputation as a global center for financial services had been tarnished by the Libor scandal.

LONDON – A leading British regulator officially unveiled the government’s plan to overhaul the rate at the center of the manipulation scandal, but conceded that problems could still persist.

On Friday, Martin Wheatley, the managing director of the Britain’s Financial Services Authority, the British regulator, acknowledged that regulators should have stepped in sooner to fix the problems with the London interbank offered rate, or Libor. He also confirmed the broad strokes of the proposal, which came after a three-month review.
British authorities, which will provide more oversight, want to make it a criminal offense to alter the rate for financial gain. They also plan to implement new auditing systems to ensure traders cannot unfairly profit from small changes to Libor.

“There’s always a possibility for collusion,” Mr. Wheatley told an audience at Mansion House, the 260-year-old home to the lord mayor of London that is adorned with gilded statues and chandeliers. “But under the new regulatory structure, people would be taking a high risk.”

The proposed changes come amid an investigation into potential rate-rigging at big global banks like HSBC, UBS and JPMorgan Chase. In June, the British bank Barclays agreed to pay $450 million to settle allegations that some of its traders tried to manipulate Libor for financial gain. The firm was also accused of understating its rates submissions to make the bank appear healthier during the financial crisis.

Mr. Wheatley, who will lead the Financial Conduct Authority, a new British regulator that will become part of the Bank of England next year, said London’s reputation as a global center for financial services had been tarnished by the recent scandal.

In response, the country’s authorities have stripped the British Bankers’ Association, the London-based trade body that currently oversees Libor, from its powers to control the rate. A new administrator will be appointed over the next 12 months.

Organizations will be able to start pitching for the position next week. The data providers Bloomberg and Thomson Reuters, which collects the daily Libor submissions on behalf of the British Bankers’ Association, as well as NYSE Euronext have expressed interest in taking on the role. Users of Libor will still pay for the financial information, Mr. Wheatley said on Friday.

Regulators are aiming to improve the accuracy and reliability of Libor, which measures the rate at which banks lend to each other. To do so, they want banks to base the rate submission on actual market transactions whenever possible.

As part of that effort, authorities are planning to focus on fewer markets that are the most liquid. Five of the current 10 currencies, including the Swedish krona and Canadian dollar, will be removed over the next 12 months. The number of rates also will be reduced to 20, from 150.

British regulators will take a more hands-on approach with the rate. They plan to audit banks’ daily Libor submissions to avoid rate manipulation.

Even so, Libor will not be immune to manipulation. Because of limited interbank lending activity, Mr. Wheatley said, sometimes the rates would have to be based on a level of judgment from banks on what interest rates they would be able to secure from other firms.

“There’s still a risk,” he said.

Article source: http://dealbook.nytimes.com/2012/09/28/british-regulators-unveil-overhaul-to-libor/?partner=rss&emc=rss

Filed Under: Business News Tagged With: jpmorgan chase, london interbank offered rate, mayor of london

DealBook: Wall Street Scandals Fill Lawyers’ Pockets

September 24, 2012 by NewsMaker Leave a Comment

Andrew Harrer/Bloomberg NewsNEW WORK Ira Lee Sorkin represents a former Barclays trader.

As Wall Street has faced a string of scandals, bank executives, investors and customers have suffered. But one group is thriving: lawyers.

Called upon to navigate crisis after crisis, the white-collar bar is having a banner year with cases like the collapse of the futures brokerage firm MF Global, a multibillion-dollar trading blunder at JPMorgan Chase and suspicions of money laundering at HSBC.

The global investigation into the manipulation of a crucial benchmark interest rate known as the London interbank offered rate has emerged as the most profitable for the legal profession.

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While many of the recent scandals have been relatively isolated, the scope of the rate-rigging scandal has been vast, encompassing 16 banks. More than 10 government authorities around the world are looking into whether the banks reported false rates, potentially affecting trillions of dollars of financial products like mortgages and student loans.

The investigation is still in its early days, but experts say it is likely to drag on for years. Authorities could arrest traders this year, and more cases against big banks are expected. Earlier this year, Barclays agreed to pay $450 million to settle accusations that it had reported false rates.

Libor Explained

Andrew Harrer/Bloomberg NewsHIGH STAKES Barclays, hardest hit in the Libor scandal, hired Sullivan Cromwell, which is led by H. Rodgin Cohen.
Andrew Harrer/Bloomberg NewsHIGH STAKES Jon S. Corzine, left, former chairman and chief executive of MF Global Holdings, and his lawyer Andrew Levander.

Every major bank under investigation has hired a major law firm to represent it. An army of white-collar defense lawyers has been assembled to defend individuals. Plaintiffs’ lawyers have filed more than a dozen lawsuits against the big banks, claiming damages on behalf of institutions, pensions and municipalities like the City of Baltimore.

“This is looking like a full employment act for the corporate bar,” said Samuel W. Buell, a professor at Duke Law School. “It’s very hard to see how you draw a tight circle around this issue.”

Over the last few decades, white-collar law has transformed from a boutique business into a major focus for the biggest law firms. As firms expand globally and the federal government makes corporate prosecutions a higher priority, the practice has become a profit center.

Companies do not like to scrimp with civil and criminal cases. The stakes are too high.

In the last decade, a number of major cases have engulfed corporate America — and by extension, white-collar lawyers. The stock options backdating scandal, which emerged in 2006, swept up more than 100 companies and many executives. The cases provided much work for lawyers, including internal investigations at major companies and notable criminal defense efforts. A few years earlier, accounting scandals at companies like Enron and WorldCom generated similarly handsome legal fees.

Not all white-collar crackdowns are the same. Consider the federal government’s insider-trading cases. The charges affect a handful of people and do not require the machinery of an entire legal institution. One former prosecutor in the Southern District of New York who spoke on the condition of anonymity because the conversations had been private said that defense lawyers jokingly complained that the hedge funds and other traders affected by the investigation tended to be low-margin clients.

With the interest-rate-fixing case, law firms started seeing the dividends in 2008. When the investigation got under way, the Commodity Futures Trading Commission, the American regulator, asked a handful of major banks to conduct internal inquiries. The goal was to figure out the extent of potential manipulation, focusing on a crucial benchmark known as the London interbank offered rate, or Libor.

At the time, the banks hired outside counsel to review the e-mails and documents as well as to conduct interviews. Barclays, the hardest-hit institution to date, hired Sullivan Cromwell, which is led by H. Rodgin Cohen. Paul, Weiss, Rifkind, Wharton Garrison is representing both Citigroup and Deutsche Bank.

The firms put dozens of top lawyers to work unearthing the worst of what had transpired, then gave their findings to regulators. Those reports form the backbone of the cases against the banks.

In the midst of the internal investigations, banks began identifying individuals who may have improperly tried to influence interest rates. Those employees are entitled to counsel, paid for by the banks. The bank’s law firm will usually refer the individuals to other white-collar lawyers, since the interests of the banks and the employees may differ. Despite the effort to reduce conflicts, the referrals can be problematic because the banks are paying the bills.

“Sometimes you may be best served by going with a lawyer who has established relationships with the people who represent the company,” said Charles D. Weisselberg, a professor at the University of California, Berkeley School of Law and co-author of a recent study examining white-collar practices at major law firms. “Or sometimes you may want someone more independent of the company lawyers who may not be looking to them for a referral in the future.”

The referral system has been big business in the Libor case.

Dozens of individuals have hired lawyers, according to interviews with lawyers. Andrew J. Levander, the Dechert lawyer who represents former Gov. Jon S. Corzine of New Jersey in the MF Global matter, has been retained by Robert E. Diamond Jr., a former Barclays chief executive. Ira Lee Sorkin, who represented the Ponzi scheme mastermind Bernard L. Madoff, has been retained by a former trader at Barclays.

The most damaging aspects of the case could be traders’ efforts to manipulate the index to squeeze more money from clients. After one exchange, a rate submitter at Barclays told a trader, “Always happy to help. Leave it with me, sir,” according to regulatory documents. Another responded, “Done … for you big boy.”

“The tenor of the exchanges reflects a relentless indifference to the rights and interests of their clients,” said Michael Hausfeld, a plaintiff’s lawyer in the Libor case. He said it could take a long time to sift through the evidence. “There are a lot of nuances here that still have to be studied, but it’s clear there was widespread disruption caused in the market.”

Article source: http://dealbook.nytimes.com/2012/09/24/wall-street-scandals-fill-lawyers-pockets/?partner=rss&emc=rss

Filed Under: Business News Tagged With: corzine, london interbank offered rate, white collar defense

DealBook: Gensler Calls for Overhaul of Libor

September 24, 2012 by NewsMaker Leave a Comment

Peter W. Stevenson for The New York TimesGary Gensler, the chairman of the Commodity Futures Trading Commission, in his office in Washington.

A senior regulator called for an overhaul of a crucial interest rate on Monday, telling the European Parliament that the integrity of consumer borrowing is at stake.

Gary Gensler, chairman of the Commodity Futures Trading Commission, suggested that authorities should retool or replace the London interbank offered rate, or Libor, which affects the cost of borrowing for consumers and corporations. Libor, a measure of how much banks charge each other for loans, underpins the cost of trillions of dollars in mortgages and other loans.

“It is time for a new or revised benchmark – a healthy benchmark anchored in actual, observable market transactions – to restore the confidence of people around the globe that the rates at which they borrow and lend money and hedge interest rates are set honestly and transparently,” Mr. Gensler said in prepared remarks that he delivered via video from Washington. “People around the world saving for the future, using credit cards or borrowing money for tuition, cars and homes have a real stake in the integrity of Libor” and other rates like the Euro Interbank Offered Rate, or Euribor.

(Mr. Gensler cancelled his trip to Brussels after a recent “clumsy” fall caused him to break four ribs and puncture a lung.)

In June, Mr. Gensler’s agency leveled a $200 million fine against Barclays, accusing the British bank of trying to manipulate Libor. The settlement was the first of several cases the agency is building against big banks suspected of lowballing rates to protect their image during the financial crisis.

Libor Explained

“Naturally, people are wondering if the Barclays situation was isolated,” Mr. Gensler said.

Citing reams of data, Mr. Gensler argued that the problem persists today.

With banks no longer lending to one another, he noted, Libor is not rooted in actual transactions. The United States-dollar-denominated Libor is also significantly different from the comparable Euribor rate. The discrepancy, he said, underscores that the rate remains vulnerable to tampering.

“When market participants submit for a benchmark rate lacking observable underlying transactions, even if operating in good faith, they may stray from what real transactions would reflect,” he said.

Some regulators have called for alternative benchmarks, including the overnight index swaps rate, that are based on real transactions. Other options include using short-term bank financing, where banks pledge collateral with other financial institutions.

While Mr. Gensler did not insist on ending Libor, he argued that it might be the safest route.

“Despite a long and painful recovery, sometimes replacement is the better choice when a hip or a knee or even a benchmark rate has worn out,” he said, a nod to his recent medical mishap.

Article source: http://dealbook.nytimes.com/2012/09/24/gensler-calls-for-overhaul-of-libor/?partner=rss&emc=rss

Filed Under: Business News Tagged With: barclays, london interbank offered rate, using credit cards

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