LONDON—Barclays said it will pay £290 million ($453.6 million) to settle a long-running probe by U.S. and U.K. regulators into allegations that traders at the bank manipulated interbank lending rates.
Bloomberg News
Libor: What You Need to Know
What it is: Libor – or the London interbank offered rate benchmark – is supposed to measure the interest rates at which banks borrow from each other. It is based on data reported daily by a 16-bank panel. Other interest rate indexes, like the Euribor (Euro interbank offered rate) and the Tibor (Tokyo interbank offered rate), function in a similar way.
Why it's important: More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans, including auto and home loans, according to the CFTC. Even small movements – or inaccuracies – in the Libor affect investment returns and borrowing costs, for individuals, companies and professional investors.
The U.K. bank is the first major financial institution to settle with regulators following a sprawling interest-rate probe in North America, Europe and Asia that has led to a score of individuals being fired or suspended by major U.S. and European banks and leading brokers. No banks or individuals have been charged with wrongdoing.
Barclays said in a statement Wednesday that it had settled with the U.K.'s Financial Services Authority, the U.S. Commodity Futures Trading Commission and the U.S. Department of Justice's fraud section. It also said Chief Executive Robert Diamond and three other top executives—Chris Lucas, Jerry del Missier and Rich Ricci—will forgo their annual bonuses for 2012.
Mr. Diamond's total compensation for 2011 came to around £15 million. "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," Mr. Diamond said. "When we identified those issues, we took prompt action to fix them and cooperated extensively and proactively with the authorities...I am sorry that some people acted in a manner not consistent with our culture and values."
The $200 million fine levied by the CFTC is the biggest financial penalty ever imposed by that regulator. The U.K.'s FSA also slapped the bank with a record £59.5 million fine, and the DOJ fined the bank $160 million.
The Libor, or London interbank offered rate benchmark, at the center of the probe is used to price home and auto loans, corporate debt and derivatives totaling more than $350 trillion. Libor is calculated by Thomson Reuters under the auspices of the British Bankers' Association and is based on data submitted daily by a 16-bank panel. The benchmark measures the rates at which major banks borrow from each other. The other major benchmark probed, the Euro Interbank Offered Rate or Euribor, is set by a panel of 43 banks.
Banks that have disclosed they are being investigated include Citigroup Inc., Deutsche Bank , HSBC Holdings, J.P. Morgan Chase and Royal Bank of Scotland. Swiss bank UBS has said it has been granted partial immunity by certain regulators, including the Justice Department, in return for cooperating with the probe.
As part of the investigation, officials are trying to determine whether some banks deliberately tried to skew Libor by submitting inaccurate data during the financial crisis. One possibility being probed is whether banks mutually agreed to hold down their rates to avoid appearing as though they were borrowing at high costs. Another key question was whether interest-rate derivative traders in the banks colluded with those who submit the data to set the rate to boost profits. U.K and U.S regulators stopped short of stating that Barclays successfully fixed the benchmark.
The CFTC said there were two areas of unlawful conduct by Barclays. The first concerned senior management, the regulator said. In late 2007, as banks came under pressure in the early rumblings of the financial crisis, Barclays managers didn't want the bank to be seen to be paying high rates to borrow, it said. After discussions "among high levels of management" within the bank, an order was sent to keep Barclays' submissions to U.S. dollar Libor at an artificially low level, the CFTC said.
"Barclays Libor submitters were told not to submit [quotes for U.S. Libor] at levels where Barclays was 'sticking its head above the parapet,'" the CFTC said. "Multiple" senior managers at the bank were involved, according to a CFTC official. People familiar with the matter say the majority of Barclays employees involved in the alleged manipulation have left the bank.
The CFTC also said Barclays traders in New York, London and Tokyo attempted to manipulate Libor to help their derivatives trading positions. Traders made unlawful requests to the bank's rate submitters "routinely, and sometimes daily" from at least mid-2005 to at least the fall of 2007, the CFTC said. The requests were frequently accepted by the bank's rate submitters, according to the CFTC. It quoted emails such as "always happy to help" and "Done...for you big boy."
A CFTC official described its $200 million penalty in a telephone call with reporters Wednesday as "an appropriate and just result." CFTC officials declined to discuss why no individuals were charged as part of the enforcement action.
The FSA said Barclays' traders sought to profit from the bank's trading positions and sought to influence other banks setting the benchmark. "Making submissions to try to benefit trading positions is wholly unacceptable. This was possible because Barclays failed to ensure it had proper controls in place," the U.K. regulator said. "Barclays' behavior threatened the integrity of the rates with the risk of serious harm to other market participants."
The settlement is the latest blow to the credibility of the Libor benchmark. The British Banker's Association said in March that a steering group made up of several major banks, including Barclays, will be asked to consider codes of conduct as part of a wide-ranging review of the methods used to set Libor.
The BBA's review, which is the second in four years, is considering the financial instruments included in defining the benchmark in an effort to ensure the daily rates submitted by the banks are accurate. A result is expected in the coming months.
In a statement Wednesday, the BBA said that the regulators' findings had "extremely serious implications which need to be carefully considered."
Bloomberg News
Libor: What You Need to Know
What it is: Libor – or the London interbank offered rate benchmark – is supposed to measure the interest rates at which banks borrow from each other. It is based on data reported daily by a 16-bank panel. Other interest rate indexes, like the Euribor (Euro interbank offered rate) and the Tibor (Tokyo interbank offered rate), function in a similar way.
Why it's important: More than $800 trillion in securities and loans are linked to the Libor, including $350 trillion in swaps and $10 trillion in loans, including auto and home loans, according to the CFTC. Even small movements – or inaccuracies – in the Libor affect investment returns and borrowing costs, for individuals, companies and professional investors.
The U.K. bank is the first major financial institution to settle with regulators following a sprawling interest-rate probe in North America, Europe and Asia that has led to a score of individuals being fired or suspended by major U.S. and European banks and leading brokers. No banks or individuals have been charged with wrongdoing.
Barclays said in a statement Wednesday that it had settled with the U.K.'s Financial Services Authority, the U.S. Commodity Futures Trading Commission and the U.S. Department of Justice's fraud section. It also said Chief Executive Robert Diamond and three other top executives—Chris Lucas, Jerry del Missier and Rich Ricci—will forgo their annual bonuses for 2012.
Mr. Diamond's total compensation for 2011 came to around £15 million. "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," Mr. Diamond said. "When we identified those issues, we took prompt action to fix them and cooperated extensively and proactively with the authorities...I am sorry that some people acted in a manner not consistent with our culture and values."
The $200 million fine levied by the CFTC is the biggest financial penalty ever imposed by that regulator. The U.K.'s FSA also slapped the bank with a record £59.5 million fine, and the DOJ fined the bank $160 million.
The Libor, or London interbank offered rate benchmark, at the center of the probe is used to price home and auto loans, corporate debt and derivatives totaling more than $350 trillion. Libor is calculated by Thomson Reuters under the auspices of the British Bankers' Association and is based on data submitted daily by a 16-bank panel. The benchmark measures the rates at which major banks borrow from each other. The other major benchmark probed, the Euro Interbank Offered Rate or Euribor, is set by a panel of 43 banks.
Banks that have disclosed they are being investigated include Citigroup Inc., Deutsche Bank , HSBC Holdings, J.P. Morgan Chase and Royal Bank of Scotland. Swiss bank UBS has said it has been granted partial immunity by certain regulators, including the Justice Department, in return for cooperating with the probe.
As part of the investigation, officials are trying to determine whether some banks deliberately tried to skew Libor by submitting inaccurate data during the financial crisis. One possibility being probed is whether banks mutually agreed to hold down their rates to avoid appearing as though they were borrowing at high costs. Another key question was whether interest-rate derivative traders in the banks colluded with those who submit the data to set the rate to boost profits. U.K and U.S regulators stopped short of stating that Barclays successfully fixed the benchmark.
The CFTC said there were two areas of unlawful conduct by Barclays. The first concerned senior management, the regulator said. In late 2007, as banks came under pressure in the early rumblings of the financial crisis, Barclays managers didn't want the bank to be seen to be paying high rates to borrow, it said. After discussions "among high levels of management" within the bank, an order was sent to keep Barclays' submissions to U.S. dollar Libor at an artificially low level, the CFTC said.
"Barclays Libor submitters were told not to submit [quotes for U.S. Libor] at levels where Barclays was 'sticking its head above the parapet,'" the CFTC said. "Multiple" senior managers at the bank were involved, according to a CFTC official. People familiar with the matter say the majority of Barclays employees involved in the alleged manipulation have left the bank.
The CFTC also said Barclays traders in New York, London and Tokyo attempted to manipulate Libor to help their derivatives trading positions. Traders made unlawful requests to the bank's rate submitters "routinely, and sometimes daily" from at least mid-2005 to at least the fall of 2007, the CFTC said. The requests were frequently accepted by the bank's rate submitters, according to the CFTC. It quoted emails such as "always happy to help" and "Done...for you big boy."
A CFTC official described its $200 million penalty in a telephone call with reporters Wednesday as "an appropriate and just result." CFTC officials declined to discuss why no individuals were charged as part of the enforcement action.
The FSA said Barclays' traders sought to profit from the bank's trading positions and sought to influence other banks setting the benchmark. "Making submissions to try to benefit trading positions is wholly unacceptable. This was possible because Barclays failed to ensure it had proper controls in place," the U.K. regulator said. "Barclays' behavior threatened the integrity of the rates with the risk of serious harm to other market participants."
The settlement is the latest blow to the credibility of the Libor benchmark. The British Banker's Association said in March that a steering group made up of several major banks, including Barclays, will be asked to consider codes of conduct as part of a wide-ranging review of the methods used to set Libor.
The BBA's review, which is the second in four years, is considering the financial instruments included in defining the benchmark in an effort to ensure the daily rates submitted by the banks are accurate. A result is expected in the coming months.
In a statement Wednesday, the BBA said that the regulators' findings had "extremely serious implications which need to be carefully considered."
