Sunday 1 July 2012

Barclays and Libor - more than just 'rouge traders'.

I was surprised yesterday that on its main news bulletins a reporter for BBC News seemed to support the 'rouge traders' narrative, when she said something along the lines that Barclays' traders had manipulated the Libor rate for 'personal gain'. Can't remember her name and quite frankly if that is the best she can do, can't be bothered either.

Now whilst this may have been true for the first tranche, it fails to mention what happened in the second tranche of manipulating the Libor rates.

This below is an extract from findings of the U.S.A Commodity Futures Trading Commission (CFTC) where they allege:

During the financial crisis period, Barclays believed that the market and media inaccurately perceived Barclays as having liquidity problems in part because the rates submitted for LIBOR by Barclays were significantly higher at times than the rates submitted by other banks. Barclays contended the other banks' submissions were inappropriately low given the realities ofthe market conditions and lack of transactions occurring in the interbank markets. To manage public perceptions that its higher LIBOR submissions meant Barclays was a weaker institution, Barclays' senior management directed the Barclays submitters to lower Barclays submissions in order to be closer to the rates submitted by the other bank, and thus, be a less noticeable outlier from the rest of the banks. The Barclays submitters complied with the management directive by submitting artificially lower rates than they would have otherwise submitted and that were inconsistent with the definition and criteria for submitting LIBOR. As a result, Barclays did not submit rates reflecting or relating to borrowing of unsecured funds in the relevant interbank markets.

I should point that as part of the offer agreement to settle, Barclays did so "Without admitting or denying the findings or conclusions [of CFTC Order]..., except to the extent Respondents admit those findings in any related action against Barclays by, or any agreement with, the Department of Justice or any other governmental agency or office,....."

You can download the full transcript from CFTC website. (in pdf format)



Note: All words in italics are from the CFTC Order.

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