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2012-12-20 06:14:44
Dec 19th 2012, 14:30 by J.R.
FOR any who doubted whether there was honour among thieves, or indeed among
investment bankers, solace may be found in the details of a settlement between
UBS, a Swiss bank, and regulators around the world over a vast and troubling
conspiracy by some of its employees to rig LIBOR and EURIBOR, key market
interest rates. Regulators in Britain and Switzerland have argued that
manipulation of interest rates that took place over a long period of time,
involved many employees at UBS and that, according to Britain s Financial
Service Authority, was so routine and widespread that every LIBOR and
EURIBOR submission, in currencies and tenors in which UBS traded during the
relevant period, was at risk of having been improperly influenced to benefit
derivatives trading positions. In these settlements UBS agreed to pay 1.4
billion Swiss Francs ($1.5 billion) to British, American and Swiss regulators.
Yet, even in the midst of this wrongdoing there was evidence of a sense of
honour, however misplaced. One banker at UBS, in asking a broker to help
manipulate submissions, promised ample recompense:
"I will fucking do one humongous deal with you ... Like a 50, 000 buck deal,
whatever. I need you to keep it as low as possible ... if you do that ... I ll
pay you, you know, 50,000 dollars, 100,000 dollars ... whatever you want ... I
m a man of my word."
Further hints emerge of the warped morality that was held by some UBS employees
and their conspirators at brokers and rival banks. In one telling conversation
an unnamed broker asks an employee at another bank to submit a false bid at the
request of a UBS trader. Lest the good turn go unnoticed the broker reassures
the banker that he will pass on word of the manipulation to UBS.
Broker B: Yeah, he will know mate. Definitely, definitely, definitely ;
Panel Bank 1 submitter: You know, scratch my back yeah an all
Broker B: Yeah oh definitely, yeah, play the rules.
The interchanges published by the FSA also reveal a comical stupidity among
people who, if judged by their above-average pay, ought to have been expected
to display above-average insight and intelligence. Sadly, they showed neither.
In one instance, two UBS employees, a manager and a trader (who also submitted
interest rates) discuss an article in the Wall Street Journal raising doubt
over the accuracy of bank s LIBOR submissions. Great article in the WSJ today
about the LIBOR problem says one. Just reading it his colleague replies.
Yet according to the FSA, some two hours later they were happily conspiring to
submit manipulated bids:
Trader-Submitter D: mate any axe in [GBP] libors?
Manager D: higher pls
Trader-Submitter D: 93?
Manager D: pls
Trader-Submitter D: [o]k
In another moment of comical stupidity one employee sends out a request on a
public chat forum at the bank asking the 58 participants if there are any
requests for a manipulated rate. Later, after being admonished to BE CAREFUL
DUDE in a private note from a manager, he replies i agree we shouldnt ve been
talking about putting fixings for our positions on public chat (sic) .
Apart from the salacious glimpse that these settlements give into the
foul-mouthed and matey culture (as well as atrocious grammar) of investment
banking trading desks, they also reveal worrying suggestions that this
conspiracy was bigger than previously suspected. Information released by the
FSA shows it involved not just banks, as was previously known from a settlement
earlier this year by Barclays, but that it also involves the collusion of
employees at inter-broker dealers, the firms that stand between banks and help
them to trade with one another.
Regulators found that brokers at these firms helped coordinate false
submissions between banks, posted false rates and estimates of where rates
might go on their own trading screens, and even posted spoof bids to mislead
market participants as to the real rate in the market.
The details in these settlements suggest that lawyers representing clients in a
clutch of class-action lawsuits in America against banks including UBS will
have a field day.
The first reason they are cheering is because UBS didn t simply submit false
estimates of interest rates on its own. According to the settlement documents,
UBS tried and apparently succeeded in some cases in getting other firms to
collude in manipulating rates. That collusion strengthens the case of civil
litigants in America who are arguing in court that banks worked together to fix
prices. It also undermines one of the defences filed by banks in American
courts that their submissions, although possibly incorrect in some cases, were
simply the individual acts of banks that happened by chance to be acting in
parallel. The latest settlements may also make it easier for civil litigants to
claim damages from UBS since the Swiss regulator found that it had profited
from its wrongdoing.
In addition, the revelation that some brokers were also complicit will add
further defendants to the already long list of firms being sued.
A further signal by these settlements comes from the size of the penalty, which
is more than three times larger than that imposed on Barclays. Both UBS and
Barclays had applied for leniency and discounts on their fines for co-operating
with investigators. Others have been less cooperative and can thus expect
somewhat harsher treatment.