What started out eleven months ago as a commercial lawsuit against various European banks regarding alleged LIBOR rate manipulation has now turned into a criminal investigation by the US Justice Department. Banks thought to include Barclays Citigroup, HSBC , Royal Bank of Scotland and UBS are undergoing investigation at present.
The criminal aspect of the case was only revealed by Justice late yesterday GMT. It is part of a global investigation across the US, Japan, Canada and the UK.
It was alleged by insiders at one institution this morning that Barclays “of all of them has been the least helpful to date”.
The suspicion has always been that traders at the banks manipulated the Libor rate to create a windfall of tens of millions of dollars each when they faced very serious liquidity problems during the 2008 credit crunch. 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. The Wall Street Journal had doubts about the veracity of that drop at the time. The Slog posted in April 2011:
‘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”….’
Back then, 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 (picture above right). Barclays this morning declined to comment on their involvement or otherwise in the criminal investigation. It is, however, understood that Swiss bank UBS is playing a key role in the case because it agreed to come forward and cooperate in the inquiries. This is almost certainly because none of the current management there are incriminated by the probe.