RBS managers condoned Libor manipulation during expansion

Nudging Libor

By influencing their own bank’s submissions, traders could nudge where Libor was fixed each day, helping to boost the value of their derivatives holdings, Andrew Verstein, a lecturer at Yale Law School, said in a paper to be published in the Winter 2013 issue of the Yale Journal on Regulation.

This strategy was employed by traders on RBS’s swaps, inflation-trading and foreign-exchange desks, all of which built positions using derivatives whose underlying value was determined by where benchmark rates were set, the people with knowledge of the banks’ trades said.

Attempts to rig the rate would be even more effective if done in collusion with counterparts at other firms. Former RBS traders Will Hall and Brent Davies are among six people named by Canada’s Competition Bureau in a probe into interest-rate rigging. The bureau accused the London-based traders in papers filed with the Ontario Superior Court in May of agreeing to participate in attempts to coordinate yen Libor submissions by at least six banks. The regulator is focusing on former UBS AG trader Thomas Hayes, according to a person briefed on the probe.

Interbank Conspiracy

Employees at RBS, HSBC Holdings Plc, JPMorgan Chase & Co., Citigroup Inc., Deutsche Bank AG, as well as interdealer brokers ICAP Plc and RP Martin Holdings Ltd. were involved in the conspiracy, the Canadian regulator said. Spokesmen for the firms declined to comment on the suit. Greg Scott, a spokesman for the Competition Bureau, wouldn’t comment about Hayes.

Hayes worked as a trader at RBS between 2001 and 2003, according to the Financial Services Authority register. Hall and Davies left RBS in 2009, the register shows. Hall now works for Morgan Stanley in Australia, and Davies is at ICAP in London.

Davies didn’t respond to e-mail and text messages, and Hall didn’t reply to e-mail and phone messages. Hayes couldn’t be traced through the Internet or directory assistance.

Another former RBS trader, Philippe Moryoussef, is being investigated by regulators for leading attempts to rig the euro interbank offered rate, or Euribor, while he was at Barclays by colluding with traders at other firms, a person with knowledge of the matter said. Moryoussef left Barclays to join RBS in 2007 and worked there until 2009. He didn’t return messages sent through LinkedIn and couldn’t be contacted through directory searches in Singapore or London.

Industry Costs

The Libor scandal may cost the industry about 7.8 billion pounds in fines and settlements of civil lawsuits, van Steenis, a London-based banking analyst at Morgan Stanley, wrote in a July 12 report to clients. For RBS, the bill may be as much as 1.1 billion pounds, he said.

The bank is in talks with regulators, making it difficult to estimate the size or timing of any potential settlements, two people familiar with the discussions said.

Hester, 51, probably will survive any fine, according to Simon Maughan, a banking analyst at Olivetree Securities Ltd. in London, because he took over in 2008, after the alleged Libor manipulation began, and couldn’t have been expected to have oversight of all parts of the business immediately.

“There’s no doubt that this isn’t going to be good for Hester,” Maughan said. “But I’d be very surprised if he’s forced out” because of it.

Bloomberg News

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