A Royal Bank of Scotland Group Plc trader colluded with a counterpart at UBS AG to pay almost 211,000 pounds ($330,000) in bribes to brokers willing to help them manipulate global interest rates, regulators said.
Neil Danziger, a London-based derivatives specialist at RBS, helped Tom Hayes, the former UBS employee at the center of the global investigation into rate-rigging, to bribe at least two brokers into persuading other banks to submit rates in line with their own, according to transcripts released by regulators that didn’t identify the traders by name. Two people with direct knowledge of the talks confirmed the traders’ identities. The regulators didn’t identify the brokers involved.
RBS was fined $612 million yesterday for manipulating global interest rates over a period of four years. The bank has also fired two of the most senior managers on its London trading floor following its own internal probe. The settlement highlights the role interdealer brokers are alleged to have played in helping traders rig the rate for profit. It also shows how intermediaries were rewarded with so-called wash trades that RBS managers never identified.
As interbank lending dried up at the start the financial crisis in late 2007, employees at the banks responsible for inputting rates increasingly relied on information from interdealer brokers in determining what figures to submit, giving the intermediaries greater power to influence the benchmark. The brokers, who act as a go-between for banks that trade bonds, stocks, currencies, energy andderivatives, were rewarded with wash trades, where clients place two or more matching trades through a broker that cancel each other out while triggering a payment of fees to the middle man, regulators said.
‘A Favor’
“Can you do me a favor,” an unidentified broker asked Danziger on Sept. 19, 2008, according to a transcript of the conversation released yesterday by the U.S. Commodity Futures Trading Commission. “You’re not going to get paid any bro for this and we’ll send you lunch around for the whole desk.” As the broker outlined the trade, he said “Take it from UBS, give it back to UBS. He wants to pay some bro,” referring to fees.
“Yeah, yeah,” Danziger replied.
Later that day, the broker asked Danziger if he could “do another 100 yards” or 100 billion, increasing the size of the transaction. “Flat switch,” the broker said. “I know I’m pushing my luck.”
RBS then entered into a wash trade with UBS that enabled the Zurich-based lender to pay about $31,000 in fees to the broker for its help in rigging Libor, the CFTC said.
Danziger enabled the corrupt payments “to increase his influence over the broker firms,” Britain’s Financial Services Authority said.
Wash Trades
Hayes, who worked at RBS between 2001 and 2003, was arrested in December by the Serious Fraud Office along with two brokers from London-based broker RP Martin Holdings Ltd., which isn’t being investigated by the FSA.
Officials at RBS, UBS and RP Martin declined to comment. Hayes’s lawyer, David Williams, didn’t immediately respond to a request for comment. Danziger didn’t respond to an e-mail as well as a request for comment through his lawyer.
Over the 12 months through August 2009, Danziger entered into at least 30 wash trades with Hayes in order to pay the brokers 211,000 pounds, according to the FSA, which didn’t identify the traders. In five of those trades, the brokerage payment was made by UBS instead of Danziger.
UBS was fined a record 1.4 billion Swiss francs ($1.5 billion) in December for manipulating rates. According to the bank’s settlement, Hayes and another colleague entered into at least nine wash-trades to pay an unidentified broker more than 170,000 pounds for helping rig the benchmark. UBS also paid 15,000 pounds a quarter to a second unidentified interdealer broker over an 18-month period for the provision of a “fixing service” for yen Libor, the U.K. regulator said in December.
Management Failings
After a wash trade in December 2008, Danziger expressed concern that his superiors would spot the deals and query their purpose.
“This will be a f---ing disaster now,” the derivatives trader responded, according to the FSA.
RBS managers failed to identify the wash trades, according to British regulators. The bank also failed to implement controls or guidance on the rate-setting process or on what communications between rate-setters and derivatives traders were acceptable, the CFTC said.
More than a dozen employees made “hundreds” of attempts to manipulate Libor over a period of at least four years to profit fromderivatives bets, regulators said yesterday. After finding that 21 out of its 137,000 employees were involved in wrongdoing, RBS began a probe into who should be held responsible for the failure to oversee the traders adequately.
Executives Dismissed
The lender dismissed Jezri Mohideen, head of rates trading for Europe and Asia Pacific, and Paul Walker, head of money- markets trading, in the months before the settlement, said a person with knowledge of the decision who asked not to be identified because the names haven’t been made public.
Two more managers have also left, RBS said in a statement today, without identifying them. They are Scott Nygaard, global head of treasury markets, and Kevin Liddy, global head of short- term interest-rate trading, the person said.
Mohideen and Nygaard didn’t return messages left on their mobile phones. Liddy didn’t reply to e-mails or a message left on his LinkedIn account. Walker didn’t reply to e-mails and wasn’t reachable through directory assistance.
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