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Barclays Libor Scandal: How Big Will This Get?

Posted by Larry Doyle on July 3, 2012 7:29 AM |

The real tragedy of the scandal is the apparent lack of ethics or self-restraint among the people involved. Following billions of dollars of trading losses at JPMorgan Chase & Co.’s out-of-control London unit, the latest installment of big-bank follies offers yet more proof that the industry shouldn’t be trusted to regulate itself.

The earthquake that rocked Wall Street and the global financial markets in 2008 continues to reverberate today. Just ask Bob Diamond, CEO of Barclays . . . or I should say, former CEO of Barclays.

Diamond, the once high-flying American banker was dethroned overnight as the chief executive of the UK-based bank as public pressure and outrage grow over the current Libor price-fixing scandal. Do not think for a second that the CEOs of other large global banks are not sufficiently concerned of their own standing this morning. As well they should be.

I have written at length of the destruction of public trust due to the incestuous nature of the relationship between financial titans, their political partners, and compliant financial self-regulators. Major financial media have shied away from fully addressing this reality. In what I would define as a tipping point, I am surprised yet heartened to read Bloomberg acknowledge what many have known for far too long, There’s Something Rotten in Banking:

We don’t countenance bank bashing. Nor have we ever called on regulators to bust up big banks. But it’s difficult to defend an industry that defrauds the market with fake interest rate figures, thereby stealing from other banks and customers.

Sadly, the Libor case reveals something rotten in today’s banking culture. We hope the investigations expose the bad actors, lead to jail terms for those who knowingly manipulated the market, and force out the senior managers and board directors who participated in, or overlooked, such conduct.

Bloomberg hits Wall Street and The City hard. Deservedly so. The call for jail time echoes my sentiments expressed yesterday.

Why so exercised? In the Barclays settlement documents, regulators released smoking-gun e-mails that reveal the extent of the dirty dealing between bank traders (looking to protect profits and bonuses) and senior officials in bank treasury units (hoping to convince markets that their banks weren’t in financial difficulty). The two aren’t supposed to collude, but it’s obvious that the Chinese walls between them come with ladders.

As this story continues to unfold and the public outrage mounts, I would bet executives at the banks in the crosshairs of this scandal might have already called senior officials within the Federal Reserve and U.S. Treasury looking for cover. Public outrage and accompanying DEMANDS for TOTAL TRANSPARENCY here in the states are required to expose THE TRUTH of this entire scandal.

Barclays was certainly not an island in the tsunami that overwhelmed all banks and the global economy in 2008. How many other institutions are currently sweating profusely wondering what may be revealed in a review of internal communications? Despite what banking executives might say, the e-mail expose emanating from Barclays is explosive and  indicative of a culture not only at that organization but the industry as a whole.

Who knows what the future might hold for the individuals who wrote the following. Will they be indicted for market manipulation? They should certainly be indicted for stupidity. Under the heading of “You cannot make this stuff up,” Bloomberg reveals:

Here’s an e-mail about the three-month rate from a senior Barclays trader in New York to the London banker who submitted the rates: “Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the lib or 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.”

Bankers submitting rates responded to such requests as if they were routine: “For you, anything,” and “done … for you big boy,” according to the e-mails. Not that the efforts went unappreciated: “Dude. I owe you big time!” one trader wrote to a Libor submitter. “Come over one day after work and I’m opening a bottle of Bollinger.”

Barclays traders also coordinated with counterparts from other banks. In an instant message, one Barclays trader wrote to a trader at another bank: “If you know how to keep a secret I’ll bring you in on it, we’re going to push the cash downwards. … I know my treasury’s firepower … please keep it to yourself otherwise it won’t work.”

If the best defense is a good offense, other banks likely to be dragged into this scandal are already hard at work. How so? Late yesterday afternoon, the WSJ reported Banks Seek Dismissal of Libor Suit. Not so fast, gentlemen. Let’s see the e-mail exchanges.

I have long maintained:

. . .  the industry shouldn’t be trusted to regulate itself.

Will this scandal bring about the necessary change on that front?

Stay tuned . . . and in an attempt to bring about the requisite transparency and the truth behind this scandal, I would ask you to share this commentary via Facebook, Twitter, e-mail and other means. Thank you.

Questions, comments encouraged and appreciated.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • ELH

    And this morning the Federal Energy Regulatory Commission announced that it is investigating JP Morgan for manipulating the power markets.

    Yup, less regulation of these fraudsters is what we need!

  • Dcoronata

    How big will this get? Massive.

    It puts almost every single financed transaction in the last five years into question- did you pay a real market rate for your mortgage, car loan, corporate bond, or was that rate manipulated higher through non-free market mechanisms?

    For all practical purposes, we had no free market on interest rates- they were manipulated. We were lied to by the banks, and when their own malfeasance undid them, we had to bail them out.

    And they still refuse to be regulated.

    • revkevblue

      Well said.

  • Johnny

    We need to start executing these criminals. It is unbelievable that Wall Street crooks get away with impacting tens of millions of people with their shennigans.

  • JHN

    Consumers need to abandon the big banks and join credit unions.

    Consumers needs to penalize these institutions because the regulators are nothing but lapdogs for the institutions.

  • fred


    What if the incestuous relationship between Wall Street and Washington was initiated by Washington? (This would certainly explain Wall Street’s continuing arrogance).

    As the Barclays story unfolds, it will become clear (if you read between the lines) that the bid rigging was allowed and even encouraged by regulators in both Washington and London.

    Do you think it was a coincidence that Bob Diamond, CEO Barclays, was an American with strong ties in both Washington and on Wall Street?

    Even greedy young traders know the difference between right and wrong, unless maybe, they are told by their boss that wrong is now right. (This would explain the cavalier attitude betweeen the traders and the ‘rate setters’ in the emails).

    The UK has been ‘piggybacking’ US policy for years now. The Fed and Treasury were keenly aware that ARM resets were reliant on libor and that they had a strong ally they could depend on, the Bank of England.

    When the real estate bubble burst in 2008-9, it was in the best interest of all parties to keep libor as low as possibe.

    The only problem, libor is set by the ‘market’ not by central banks. No worries, that’s where Barclays and ‘players’ to be named later come in to do the dirty work.

    Do the ends justify the means?

    The only thing left to be seen, who will be the sacrificial lambs and how will this story be killed by the major news agencies so that public attention will focus elsewhere. (The Nov election).

  • Azure

    Are we to understand that Bob Diamond can just walk away from Barclay’s? When will he be imprisoned? The example of fining Barclay’s, RBS, and the rest (hopefully in their turn) should begin the process of real punishment for the perpetrators. This will not stop unless the perps go to jail.

    Example: I walk into a store and steal 10 candy bars. I am caught, I am convicted; but, my penalty is to give 1 candy bar back. Where’s the justice? All of us should be howling mad that our lifelong investments have been stolen (in the name of LIBOR) and we should not be satisfied that the government gets the fines instead of restoring our lost money to us.

    Put the perps in jail.

  • Jerci

    It is important for people to keep track of this.

    The bankers who defrauded us need to be tried, convicted and sent to prison so that the others are fairly warned that this sort of behavior is not tolerated.

    Regulators who looked the other way must be themselves punished, and at a minimum, replaced.

    Make no mistake, this is a big deal.

    A major opportunity exists to seriously damage the crooked be they bankers, regulators or politicians.

    We need decent media folk to keep reporting all developments in this and other areas where there is scandalous behavior.

  • Medianone

    Not to pile it on (necessarily) but do a search for “barclays money laundering” for a quick primer to bring you up to speed on this bank and the men who run it. And they are not alone…

    Search “how a big US bank laundered billions from Mexico’s murderous drug gangs” and read Ed Vulliamy’s Observer story…

    And the eye-opening Rolling Stone story “The Scam Wall Street Learned from the Mafia” shows just how prevalent bad-deed-doing is among the major banks.

    Congress needs to get off their ‘collective duffs’ and start funding and enforcing the laws that make us a free and great nation instead of bowing to, and taking donations from those who would destroy our country.

    • revkevblue

      That is the problem, both sides of the pond.

      Politicians are so intertwined with the bankers, they are like siamese twins sharing the same nervous system and politicians are loathe to slap down the banks because they too will feel the pain.

  • Cashman

    It’s time to forget the idea that the bankers of the world have any motivation other than personal greed. Their religion is the pursuit of money at all costs. They worship the golden calf. Fines punish shareholders, not the perpetrators.

    Until this changes in a meaningful way, the future of the world’s economy is doomed.

  • D. Morrow

    If you really care ask yourself this. If regulators knew in 2008 what was going on is waiting the regulators way of building fines or levies for their institutions? Speed traps are a way to generate revenues to save their jobs. Are regulators around the world sitting back allowing things to occur so they can later come back in and generate monies for themselves. Only an idiot would dismiss this notion.

  • aaabbbzzz

    Incremental Risk Charge: An analysis: Going forward how much will the Libor Scandal cost Barclays Bank and who will be chosen to lead its affairs. In the aftermath of the Barclays Bank Libor scandal (financial Hiroshima) and their greed and subsequent cover up tactics, we studied the future impact on the bank and its franchise in the next 6-8 months using the Monte Carlo method and the capital asset pricing model.

    This has been developed using variable analysis on a common measure of the volatility of its ongoing business, i.e. its beta–which is determined using linear regression. These have been applied to the latest audited Barclays Bank balance sheet, their Libor rate rigging scenario and inferences drawn with 95% accuracy. The result highlights the following 5 points:

    1. In the next 12 months, as its market standing and franchise has suffered, the Barclays Bank group will have to make a loan loss provision of USD 5.75 billion.

    2. Their combined exposure (including paper transactions) is USD 1.35 trillion which they need to unwind at the earliest and reconcile their financials/book of accounts within 24 months. Overall loan losses to be written off could be around USD 3.5 billion and thus their paid up capital will be affected.

    3. Their International trade, LC and LC confirmation business, correspondent banking business will reduce by about 40 % in the next 12 months as their price/rate quotation/covenants/IM will be seen with suspect.

    4. As a result of (3) above, their overseas operations will reduce (some businesses will have to close down) by at least 30 % globally. This will open up a new avenue wherein, in the next 24 months, their overseas business will very likely be acquired by 2 Chinese and 1 Australian banking consortium.

    5. The above points indicate that they will definitely need UK Government bailout well within a year. The UK government is already planning to nationalize the bank and make it a pure local British Bank going forward with an Australian as its head.

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