BREAKING….Libor manipulation scandal goes to Court

Bob Diamond…Barclays chief

Were the banks saved in 2008 – or did they save themselves?


Barclays ‘at the heart of the investigation’ says Le Figaro

Vienna-based asset management concern FTC Capital GmbH – and two funds it operates in Luxembourg and Gibraltar – are to sue twelve major investment banks. FTC accuses the banks of conspiring to artificially depress Libor, and limit trade in Libor-based derivatives from 2006 to 2009. The defendants as listed in the suit are Bank of America Corp, Barclays Plc, Citigroup Inc, Credit Suisse Group AG, Deutsche Bank AG, HSBC Holdings Plc, JPMorgan Chase & Co, Lloyds Banking Group Plc, Norinchukin Bank, Royal Bank of Scotland Group Plc, UBS AG and WestLB AG.

Just over a week ago, Swiss bank UBS made this extraordinary admission in its annual report: ‘”the [regulators’] investigations focus on whether there were improper attempts by UBS, either acting on its own or together with others, to manipulate Libor rates at certain times.” In fact, the bank has been served with a subpoena to turn up and explain some of its actions. A total of sixteen banks are being investigated, and sources in the US last night confirmed to The Slog, “What started as something half-hearted is now much more focused. I guess you could say the rumour here is that they [the regulators] are onto something pretty big”.

Rumours of an investigation are nothing new: sporadic reports and lurid blogosphere accusations appeared during 2010. A month ago, however, the Wall St Journal ran a detailed piece demonstrating that the investigation was international, and included investigators from all the major bourse centres.  But yesterday’s news that a major asset manager has decided to sue holds parallels with the civil cases against Newscorp: the game-plan, I understand, is to winkle out evidence in a courtroom that other interests don’t want in the public domain.

Three weeks ago, French Establishment paper Le Figaro claimed ‘the authorities suspect that key traders [at Barcap] used Treasury information via the main branch dealing with the UK Treasury’. At the time, the Barcap investment division was headed by the Barclays CEO today, Bob Diamond.

Diamond last appeared in Court last February, when the Lehman estate accused Barcap of having undervalued the broken company. Judge James Peck referred to Diamond’s evidence at the time as ‘devious’. Peck even advised Lehman’s lawyer, “This is a witness that needs to have the leash held tight.”

What is bound to evoke most speculation is the period chosen for the investigation into LIBOR manipulation – 2006-9. During the 2008 financial crisis, overnight Libor spiked – a sure sign banks were having trouble borrowing money. Markets drew confidence later on, when Libor rates began to drop. Even the WSJ had doubts about the veracity of that drop at the time. FTC is raising the possibility in its suit that it wasn’t the G20 or even Gordon Brown that saved the financial world after 2007: it was simple market manipulation. The Slog (especially in its previous life as nby) has argued for years the the gold bullion market is obviously manipulated, and that unaudited gold was sold regularly over the last decade: mostly by the US to China.

The British Bankers’ Association in London oversees Libor. In a statement yesterday, the BBA said it observes “rigorous standards in our scrutiny and governance of the Libor mechanism, and work with the industry to ensure their continued full confidence in one of its most accurate and reliable benchmarks.” Many observers have grown wary, over the years, of strenuous denials using the words ‘rigorous standards’.

FTC Capital GmbH said the 12 banks colluded to suppress Libor to make them appear healthier than they were, and take advantage of trading opportunities not available to outside investors. Its complaint asserts, ‘During the most significant financial crisis since the Great Depression, U.S. dollar Libor rates submitted by contributor banks did not vary markedly, nor did they increase or decrease sharply. In a market not artificially suppressed, Libor rates should have increased significantly during this period. In addition, because different banks were experiencing different levels of severe stress, the banks should have been receiving markedly different borrowing rates.”

FTC has chosen Credit Suisse as its first victim, and the case will be heard in the Southern court, New York. Stay tuned.

NB I am indebted to a Slogger for pointing me at the latest developments in the Libor case  – but his comment thread has mysteriously disappeared. Could he comment again either here or at yesterday’s Goldman piece please? Thanks JW

Related: Bob Diamond’s moral defeat in New York.