RBS managers condoned Libor manipulation during expansion

Rate-Setting

The process of setting rates was open to abuse because RBS failed to establish guidelines until June 2011, four people familiar with the business said. Managers encouraged rate-setters to discuss Libor with traders across the company as a way of ensuring the bank’s submissions reflected market conditions, particularly after money markets froze in 2007, the people said. These communications -- by e-mail, instant messages and telephone -- are the focus of regulators’ probes.

The bank’s seating arrangements helped facilitate these interactions. Money-market traders who made the firm’s daily Libor submissions sat on the same desk as derivatives traders whose profits rose and fell depending on where Libor was set, three people said. When the rate-setters were away, derivatives traders were asked by managers to make the submissions themselves, the people said.

FSA Requirements

The U.K.’s Financial Services Authority imposes no restrictions on banks to prevent communications between traders and rate-setters about Libor beyond a broad requirement for them to identify and prevent conflicts of interest, according to guidelines posted on the agency’s website.

RBS fired four employees last year for allegedly rigging Libor rates. So far no senior managers have been suspended or fired, according to a person with knowledge of the matter.

The bank is weighing disciplinary procedures against some employees, one person said. As part of the probe, in-house investigators have to draw the distinction between undue influence and reasonable sharing of information within the firm, two people said.

Mohideen Denial

Mohideen, who joined RBS in 2006, was put in charge of rates trading for Europe and the Asia-Pacific region in 2010. In January, he accepted an award presented by Risk magazine after the trade publication named RBS the top provider of inflation derivatives, which allow customers to speculate on consumer- price indexes. He also sits on the global rates board of the Association for Financial Markets, a London lobbying group.

Mohideen denies he pressured anyone to submit false rates.

“That didn’t ever happen,” he said by telephone.

He referred all further questions to RBS spokesmen. The bank said in a statement that its internal probe into rate-rigging is continuing and that it’s cooperating with regulators.

“We have to make an apology for the behavior of a few of our traders,” Finance Director Bruce Van Saun said in an Aug. 3 Bloomberg Television interview as the bank posted a 22 percent drop in second-quarter operating profit.

Hester told reporters on the same day that, for the industry, Libor has “more to do with the wrongdoing of individuals than it is to do with a systemic problem.”

Libor is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.

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