Barclays Plc fined £290m for Libor manipulation

Barclays took part in an international conspiracy that could have meant customers paid millions more than they should have to borrow money from banks.

London (UK) - 27 Jun 2012 – The Telegraph - The British and US authorities said they had found evidence Barclays had attempted to manipulate a key borrowing rate for years, meaning that home owners could have paid millions more in mortgage payments than they might otherwise have had to.

Traders at the bank were discovered to have engaged in regular attempts to determine the London Interbank Offered Rate (Libor) from as early as 2005.

The manipulation of Libor saw the bank make submissions to the setters of the rate that they knew to be wrong as they attempted to influence the level at which it was fixed.

Barclays also attempted to suppress Libor, which means that savers could have potentially lost out on millions in interest due to the rate being lower than it should otherwise have been.

Barclays chief executive Bob Diamond is to forgo his bonus after the bank was fined a total of £290m.

Andrew Tyrie MP, chairman of the Treasury Select Committee, said: “This was a serious breach. I am very concerned about it. The price setting mechanism of Libor is crucial to the integrity of the markets. This appears to have been put at risk. From the information I have, it looks inexcusable.”

The US Commodity Futures Trading Commission (CFTC) handed the bank a $200m (£128m) penalty for "attempted manipulation of and false reporting concerning Libor and Euribor benchmark interest rates", while Barclays has agreed to pay a $160m penalty as part of an agreement with the US Justice Department.

David Meister, the CFTC's director of enforcement, said: "The American public and our markets rely upon the integrity of benchmark interest rates like LIBOR and Euribor because they form the basis for hundreds of trillions of dollars of transactions and affect nearly every corner of the global economy.

"Banks that contribute information to those benchmarks must do so honestly. When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports that result from senior management orders to lower submissions to guard the bank's reputation, the integrity of benchmark interest rates is undermined. The CFTC launched this investigation to protect the markets and the public from such illegal conduct, and today's action demonstrates that we will bring the full force of our authority to bear as we carry out that mission."

The UK's Financial Services Authority has imposed its largest ever penalty of £59.5m.

The CFTC found that finds that "Barclays attempted to manipulate and made false reports concerning two global benchmark interest rates, Libor and Euribor, on numerous occasions and sometimes on a daily basis over a four-year period, commencing as early as 2005".

Libor is used to price more than £200 trillion of financial products around the world, including everything from home loans to the most complex credit derivatives. Euribor measures the cost of borrowing in the European Union.

In a statement, Mr Diamond said that he and three other senior managers would hand back their bonuses for 2012 in light of the fines: "The events which gave rise to today's resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business.

"When we identified those issues, we took prompt action to fix them and co-operated extensively and proactively with the authorities.

"Nothing is more important to me than having a strong culture at Barclays; I am sorry that some people acted in a manner not consistent with our culture and values. To reflect our collective responsibility as leaders, Chris Lucas, Jerry del Missier, Rich Ricci and I have voluntarily agreed with the Board to forgo any consideration for an annual bonus this year."

Mr Diamond's was handed a £2.7m bonus for 2011, which pays out over three years, that will only pay out in full when the bank's return on equity exceeds its cost of equity.

The CFTC said that the attempts to manipulate Euribor "included Barclays' traders asking other banks to assist".

One trader stated in an email to a submitter: “We have another big fixing tom[orrow] and with the market move I was hoping we could set [certain] Libors as high as possible.”

The CFTC statement continued: "In addition, certain Barclays euro swaps traders, led at the time by a senior trader, coordinated with and aided and abetted traders at other banks in each other's attempts to manipulate Euribor, even scheming to impact Euribor on key standardized dates when many derivatives contracts are settled or reset."

The traders' requests were often accepted by Barclays' submitters, who emailed responses such as “always happy to help”, “for you, anything”, or “Done…for you big boy”.

The traders and submitters also engaged in similar conduct on fewer occasions with respect to yen.

The bank's settlement follows a three-year investigation into the allegations, which first surfaced in the months following the collapse of Lehman Brothers in September 2008.

In the months afterwards Barclays was identified as one of the bank's making the highest submission to Libor. In its final notice, the FSA said senior managers at Barclays were worried about the “negative publicity” the bank was receiving, leading to orders being given by “less senior managers at Barclays to reduce Libor submissions”.

The regulator added that the origin of these instructions was “unclear”.

Senior managers even coined the phrase “head above the parapet” to describe high Libor submissions relative to other banks.

Barclays has already disciplined several staff in relation to Libor manipulation and the settlement is expected to see several more employees leave the bank. A spokesman for Barclays would not say how many staff were involved, but added that it was a “relatively small number”.

While Barclays current managers have agreed to give up their bonuses for last year, it is not clear what action the bank could take against former executives, in particular former chief executive, John Varley, who was in charge of the lender at the period under investigation.

Mr Varley is currently seen as one of the frontrunners for the governorship of the Bank of England.

How Barclays manipulated Libor

The report from the US Commodity Futures Trading Commission (CFTC) highlights communications between Barclays traders and those tasked with submitting Libor estimates which it claims show an attempt to manipulate rates on "numerous occasions and sometimes on a daily basis".

London (UK) - 27 Jun 2012 – The Telegraph - The report shows that one Barclays trader wrote to a submitter:

We have another big fixing tom[orrow] and with the market move I was hoping we could set [certain] Libors as high as possible.

The requests to move Libor rates were frequently accepted by Barclays' submitters, who emailed responses such as this, written in response to a swaps trader's request for a high one-month and low three-month US Dollar Libor on March 16, 2006:

For you... anything. I am going to go 78 and 92.5. It is difficult to go lower than that in threes. Looking at where cash is trading. In fact, if you did not want a low one I would have gone 93 at least.

Other responses included the phrases: “always happy to help” and “Done…for you big boy”.

For you ... anything. I am going to go 78 and 92.5. It is difficult to go lower than that in threes. looking at where cash is trading. In fact, if you did not want a low one I would have gone 93 at least. March 16, 2006, submitter's response to swaps trader's request for a high one-month and low three-month US Dollar Libor

[Senior trader] owes me! February 7, 2006, submitter's response when swaps trader called him a "superstar" for moving Barclays' US Dollar Libor submission up a basis point more than the submitter wanted and for making a submission with the intent to get "kicked out"

According to the CFTC senior managers even coined the phrase “head above the parapet” to describe putting in high Libor submissions relative to other banks.

Sometimes, the traders asked the submitters to try to have Barclays excluded from the Libor calculation altogether by deliberately falling into the top or bottom quartile, in an attempt to influence the official fixing. Sometimes the requests covered several days or even weeks of submissions at a time.

WE HAVE TO GET KICKED OUT OF THE FIXINGS TOMORROW!! We need a 4.17 fix in 1m (low fix) We need a 4.41 fix in 3m (high fix) November 22, 2005, senior trader in New York to trader in London

You need to take a close look at the reset ladder. We need 3M to stay low for the next 3 sets and then I think that we will be completely out of our 3M position. Then its on. [Submitter] has to go crazy with raising 3M Libor. February 1, 2006, trader in New York to trader in London

Your annoying colleague again ... Would love to get a high 1m Also if poss a low 3m... ifposs ... thanks February 3, 2006, trader in London to submitter

This is the [book's] risk. We need low 1M and 3M libor. PIs ask [submitter] to get 1M set to 82. That would help a lot March 27,2006, trader in New York to trader in London

Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the libor fixing at 5.39 for the next few days. It would really help. We do not want it to fix any higher than that. Tks a lot. September 13, 2006, senior trader in New York to submitter

For Monday we are very long 3m cash here in NY and would like the setting to be set as low as possible ... thanks December 14, 2006, trader in New York to submitter

PIs. go for 5.36 Libor again tomorrow, very long and would be hurt by a higher setting ... thanks. May 23, 2007, trader in New York to submitter

The following are just some of the numerous examples of the communications between the traders and submitters:

June 1, 2006:

Senior euro swaps trader: "Hi [Euribor Submitter], is it too late to ask for a low 3m?"

Euribor submitter: "Just about to put them in ..... so no."

September 7, 2006:

Senior euro swaps trader: "I have a huge 1m fixing today and it would really help to have a low 1m tx a lot."

Euribor submitter: "I'll do my best."


Senior euro swaps trader: "because I am aware some other banle need a very high one ... .if you could push it very low it would help. I have 50bn fixing."

October 13, 2006:
Senior euro swaps trader: "I have a huge fixing on Monday ... something like 30bn 1m fixing ... and I would like it to be very very very high ..... Can you do something to help? I know a big clearer will be against us ... and don't want to lose money on that one."

Euribor submitter forwarded the request to another Euribor submitter, advising: "We always try and do our best to help out. .... "

Senior euribor submitter to senior euro swaps trader: "By the way [euribor submitter] tells me that it would be good to see a high lmth fix on Monday, we will pay for some cash that morning so hopefully that will help."

January 12, 2007:
Senior euro swaps trader: "hi [Euribor submitter]. we need a low 1m in the coming days if u can .... "

Senior euribor submitter: "hi [senior euro swaps trader], we will keep the 1mth low for a few days."

April 2, 2007:
Euro swaps trader: "hello [Senior Euribor Submitter], could you please put in a high 6 month euribor today?"

Senior Euribor submitter: "will do."

July 29, 2008:
Euro swaps trader to senior euro swaps trader: "I was discussing the strategy [to get a high fixing] with [Senior Euribor Submitter] earlier this morning - today he will stay bid in the mkt and put a high fixing but without lifting any offer, and then he will be really paying up for cash tomorrow and Thursday which is when the big positive resets are."

A senior Barclays Treasury manager informed BBA in a telephone call that it had not been reporting accurately, although he noted that Barclays was not the worst offender of the panel bank members. "We're clean, but we're dirty-clean, rather than clean-clean."

The BBA representative responded, "no one's clean-clean." The senior Barclays Treasury manager replied "no, because ofthe very fact of what happened to us ... We were clean ... the market ... reacted accordingly. And that's why we stepped away again."

The Financial Services Authority has also issued a report on Barclays and imposed a fine of £59.5m. Its report details exchanges between traders, such as this one:

On 26 October 2006, an external trader made a request for a lower three month US dollar LIBOR submission. The external trader stated in an email to Trader G at Barclays “If it comes in unchanged I'm a dead man”. Trader G responded that he would “have a chat”. Barclays' submission on that day for three month US dollar LIBOR was half a basis point lower than the day before, rather than being unchanged. The external trader thanked Trader G for Barclays' LIBOR submission later that day: “Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger”.

David Meister, the CFTC's director of enforcement, said:

The American public and our markets rely upon the integrity of benchmark interest rates like LIBOR and Euribor because they form the basis for hundreds of trillions of dollars of transactions and affect nearly every corner of the global economy.

Banks that contribute information to those benchmarks must do so honestly. When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports that result from senior management orders to lower submissions to guard the bank's reputation, the integrity of benchmark interest rates is undermined. The CFTC launched this investigation to protect the markets and the public from such illegal conduct, and today's action demonstrates that we will bring the full force of our authority to bear as we carry out that mission.