Libor Fixing Scandal: Global Banks and Brokers Will Not Join Forces to Reach Settlement

The banks and brokers under investigation for manipulating or falsifying a number of global interbank lending rates are unlikely to settle collectively with regulators, despite a range of media reports suggesting that financial firms are joining forces to end the investigation.

Since each entity is being investigated for different periods and situations, and all have separate agreements with different regulators across a vast range of jurisdictions, it is highly unlikely that the banks and brokers under investigation for the alleged rigging of the London Interbank Offered Rate (Libor), and in some cases similar interbank lending rates from Asia, will group together to reach a joint settlement, key market sources told IBTimes UK.

Legal experts also told IBTimes UK that a group settlement would be unfeasible.

"It is not realistic for the banks and brokers to be settling at this stage. From the reports that have circulated in the media about a joint settlement, that is utterly unrealistic," said Stuart Miller, managing partner at law firm Miller Rosenfalck. "It is more of an expression of hopefulness that there will be a swifter end to the wider Libor scandal. But for banks to be speaking in a proper way to each other in order to coordinate in such a way with regulators to reach such a settlement immediately seems highly implausible."

"If you divorce the speculative reports to what we actually know, there is currently no forum outside the G20 for regulators to coordinate and meet on this or for different prosecutors across different [multiple jurisdictions] to coordinate in such a fashion. You have also got to think about the length of time it takes to conduct internal and external investigations as well as dealing with customer litigation proceedings - if it did come to that. Banks have no way yet of controlling the timetable of that litigation. They do not even know yet who the Claimants will be," he added.

Speaking to IBTimes UK, several well placed market sources dismissed a report from Reuters claiming that a "group of banks being investigated in an interest-rate rigging scandal is looking to pursue a group settlement with regulators rather than face a Barclays-style backlash by going it alone."

The Reuters report did not name banks or sources.

As IBTimes UK noted on Thursday, while Barclays may be the first bank to settle for a record fine with some US and UK regulators for manipulating Libor between 2005 and 2009, the scandal has uncovered a more widespread problem and questions into how Libor is calculated and set. Government investigators around the world are currently conducting probes into a number of other institutions, in addition to Barclays.

While Barclays settled with the US Department of Justice (DoJ), the U.S. Commodity Futures Trading Commission (CFTC) and the UK's Financial Services Authority (FSA), the bank is still under investigation in other jurisdictions, such as Switzerland.

What the Banks and Brokers Say

When IBTimes UK contacted the banks and brokers under investigation for a response on the group settlement and on sourced reports, we received the following responses.

A spokesperson at SG told IBTimes UK that "SG is part of a number of panels which determine interbank rates. SG is fully cooperating with the relevant authorities to provide any information they should wish to obtain. To this day, there has been no allegation of wrongdoing against the bank from regulators."

HSBC declined to comment but a spokesperson directed IBTimes UK to the following statement in its annual report:

"Various regulators and competition and enforcement authorities around the world including in the UK, the US and the EU, are conducting investigations related to certain past submissions made by panel banks in connection with the setting of London interbank offered rates ('LIBOR') and European interbank offered rates. As certain HSBC entities are members of such panels, HSBC and/or its subsidiaries have been the subject of regulatory demands for information and are cooperating with their investigations. In addition, HSBC and other panel banks have been named in putative class action lawsuits filed by private parties in the US with respect to the setting of US dollar LIBOR."

UBS declined to comment on specifics but a spokesperson said, "We are taking these investigations very seriously and are fully cooperating with the authorities."

A spokesman at RBS said that the bank would not comment on "speculation regarding a joint settlement" but the spokesman delivered the following statement:

"The Group continues to receive requests from various regulators investigating the setting of LIBOR and other interest rates, including the US Commodity Futures Trading Commission, the US Department of Justice, the European Commission, the FSA and the Japanese Financial Services Agency. The authorities are seeking documents and communications related to the process and procedures for setting LIBOR and other interest rates, together with related trading information. In addition to co-operating with the investigations as described above, the Group is also keeping relevant regulators informed. It is not possible to estimate with any certainty what effect these investigations and any related developments may have on the Group."

Citigroup, Credit Suisse, JP Morgan, Rabobank, Icap and brokerage RP Martin Holdings all declined to comment when IBTimes UK asked about the on-going investigations and whether they are working together to arrive at a group settlement with regulators.

Sumitomo Mitsui Banking Europe Limited, a subsidiary of Japanese parent group Sumitomo Mitsui Banking, declined to comment. Sumitomo Mitsui Banking Corporation, based in Tokyo, was not immediately available for comment.

Deutsche Bank, Mizuho Financial Group and Bank of Tokyo-Mitsubishi UFJ did not respond to enquiries by IBTimes UK.

Banks and Brokers Under Scrutiny

The Barclays Libor rigging scandal has opened a can of worms. The whole global interest rate setting arena is mainly self-reporting and monitoring, so IBTimes UK took a look at what different governments, regulators and central banks are doing to tackle the situation.

Different regulators, under different jurisdictions are investigating a number of banks and brokers.

Some have already taken action and some are planning further investigations and reviews.

Reviews and Immunity

Over the past year, Japanese regulator Securities and Exchange Surveillance Commission (SESC) has cracked down on banks that have been seen to manipulate or attempt to rig the Tokyo interbank offered rates (Tibor).

Katsunori Nagayasu, the former Japanese Bankers Association (JBA) chairman said in February this year that the group may take measures to improve the way the JBA compiles Tibor, much like the BBA, following the Financial Services Agency's (FSA) penalties for Citigroup and UBS.

Japanese regulators have already suspended some banks' operations, such as Citigroup and UBS, after the SESC found that some staff attempted to manipulate Tibor rates.

The JBA revealed that is considering a review of as many as 16 banks to make sure they adhere to the lobbying group's guidelines for making honest and accurate submissions for yen-denominated Tibor.

Hisanao Aoki, a spokesman for the association, confirmed that all reference banks may be reviewed for how they submit rates in the "offshore" market for Tibor rates, known as euro-yen Tibor. Meanwhile, Japanese lawmaker and former Morgan Stanley banker Tsutomu Okubo is said to be heading a panel examining these firms and will call on the JBA to explain how Tibor is set.

In UBS' last quarterly report, the Swiss bank said it had reached immunity deals with the Department of Justice and regulators in Switzerland and Canada, giving it protection against enforcement action in relation to certain transactions and submissions for Yen Libor and Euroyen Tibor.

"Several government agencies, including the SEC, the US Commodity Futures Trading Commission, the DOJ and the FSA, are conducting investigations regarding submissions with respect to British Bankers' Association LIBOR rates," says part of the statement. "We understand that the investigations focus on whether there were improper attempts by UBS (among others), either acting on our own or together with others, to manipulate LIBOR rates at certain times. In addition, the Swiss Competition Commission (WEKO) has commenced an investigation of numerous banks and financial intermediaries concerning possible collusion relating to LIBOR and TIBOR reference rates and certain derivatives transactions."

"UBS has been granted conditional leniency or conditional immunity from authorities in certain jurisdictions, including the Antitrust Division of the DOJ and WEKO, in connection with potential antitrust or competition law violations related to submissions for Yen LIBOR and Euroyen TIBOR. WEKO has also granted UBS conditional immunity in connection with potential competition law violations related to submissions for Swiss franc LIBOR and certain transactions related to Swiss franc LIBOR. The Canadian Competition Bureau has granted UBS conditional immunity in connection with potential competition law violations related to submissions for Yen LIBOR. As a result of these conditional grants, we will not be subject to prosecutions, fines or other sanctions for antitrust or competition law violations in the jurisdictions where we have conditional immunity or leniency in connection with the matters we reported to those authorities, subject to our continuing cooperation," adds the statement.

Elsewhere, the Swiss Competition Commission (COMCO) received information regarding potential unlawful agreements among banks in February this year.

"Specifically, collusion between derivative traders might have influenced the reference rates LIBOR and TIBOR," said a statement. "Furthermore, market conditions regarding derivative products based on these reference rates might have been manipulated too. Hence, COMCO has opened an investigation against UBS and Credit Suisse, as well as against more than ten foreign financial institutes and other companies."

Beside the two major Swiss banks UBS and Credit Suisse, ten foreign banks (Bank of Tokyo-Mitsubishi UFJ, Citigroup, Deutsche Bank, HSBC, JP Morgan, Mizuho Financial Group Inc., Rabobank , Royal Bank of Scotland, Société Générale, Sumitomo Mitsui Banking Corporation) and other financial intermediaries are subject to this investigation led by Comco.

More Probes but No Evidence of Wrongdoing

In Europe, central banks and regulators will be ramping up efforts to address the way Libor is currently calculated and investigate most banks, not just Barclays, when it comes to rate manipulation.

According to reports by Reuters and the Financial Times (FT), traders at Deutsche Bank, HSBC, Societe Generale and Credit Agricole are currently under investigation for interest-rate manipulation as part of a global probe.

Citing unnamed sources and with no confirmation or comment from the people or the banks themselves, Reuters and the FT said that regulators are investigating the possible roles of Michael Zrihen at Credit Agricole, Didier Sander at HSBC and Christian Bittar at Deutsche Bank.

Philippe Moryoussef has also apparently left his derivatives trading post in Singapore with Nomura, as he is also under investigation for the time he period he spent working for Barclays, which was between 2005 to 2007.

SG has since confirmed that it has been contacted as part of a broad probe into the alleged manipulation of interbank lending rates but there has so far been no allegation of wrongdoing against the French bank.

Undisclosed Cases

While some regulators have explicitly disclosed bank or broker names they are investigating, some have indirectly disclosed names, when they say they are reviewing all banks or brokerages that are involved in the interbank lending rate setting process.

In the UK the Financial Services Authority (FSA) confirmed that seven other banks are currently under investigation in relation to manipulating Libor through submissions falsification.

Tracey McDermott, acting director of enforcement and financial crime at the FSA told the Treasury Select Committee (TSC) that while it was unlikely that there would be any criminal prosecutions of those implicated in the market manipulation, the British regulator is investigating seven lenders that are "not all British banks" but could not identify the firms as the "investigations are still on-going".

Meanwhile, the Serious Fraud Office (SFO) confirmed to the IBTimes UK that it is formally investigating Barclays and other undisclosed banks and individuals for criminal activity in relation to Libor rigging. Although the SFO is investigating to see if it can criminally prosecute individuals at institutions, critics have said that it is either too difficult or unlikely that it will be able to launch criminal proceedings, even though civil proceedings have been successful.