Tag Archives: barclays

36 UBS Bankers To Be Implicated In Liborgate, Criminal Charges To Be Filed

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ZeroHedge

As the fallout of Liborgate escalates, the next big bank to be impacted in the fallout started by Barclays civil settlement “revelation” is set to be troubled UBS, already some 10,000 bankers lighter, where as many as three dozen bankers are reported by the implicated in the fixing of the rate that until 2009 was the most important for hundreds of trillions in variable rate fixed income products. Only instead of attacking the US or even European jurisdiction, where the next big settlement is set to hit is Japan: a country whose regulators as recently as half a year ago promised there were no major issues with Libor, or Tibor as it is locally known, rate fixings. And while this most recent development will have little material impact on UBS’ ongoing business model, the one difference from previous settlements is that it will likely include criminal charges lobbed against some of the 36 bankers.

From the FT:

“UBS is close to finalising a deal with UK, US and Swiss authorities in which the bank will pay close to $1.5bn and its Japanese securities subsidiary will plead guilty to a US criminal offence. Terms of the guilty plea were still being negotiated, one person familiar with the matter said on Monday, adding that the bank will not lose its ability to conduct business in Japan. The pact between the bank and the US Commodity Futures Trading Commission, US Department of Justice, UK’s Financial Services Authority and UBS’s main Swiss supervisor Finma is expected to be announced on Wednesday, although last minute negotiations continue.”

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Not all of the three dozen individuals will face criminal or civil charges and the level of alleged misconduct varies among them. While it also is not clear how many bankers will be criminally charged, people familiar with the investigation said the settlement documents will document an intercontinental scheme to manipulate the Yen-Libor interest rate over several years involving desks from Tokyo to London.

The UK FSA has also notified at least five individuals linked to UBS that they are being personally investigated in connection with Libor. The watchdog has the power to impose fines and ban people from working in London’s financial services industry.

Criminal and regulatory investigations of individuals often take significantly longer than cases against institutions. The global settlement reached with Barclays over the summer did not include any charges against individuals, but several bankers are under criminal investigation, according to people familiar with the matter.

To a big extent, the reason why so many banks have given up on Libor and are now eager to settle comparable allegations, is because in a world in which not banks are primary counterparties to other banks, but central banks onboard all the counterparty risk, especially in Europe, Libor is now an anachronism – an unsecured lending rate remnant from another time, a time when there was risk a bank may fail without dragging its host central bank. That time is now gone, and as a result the only relevant metric now is how effectively can banks flush to the gills with excess reserves courtesy of various central banks, use said capital to generate a return on (central bank) capital, and a high enough ROE to keep shareholders happy.

Which is why even as banks are settling Libor allegations left and right, and even willing to throw some low-level traders under the bus because just like Fabulous Fab Tourre, nobody else had any idea of the criminal rate manipulation that was going on, and certainly not the corner office, what banks are really doing is learning from the master of trading – that would be none other than Steve Cohen – and experimenting with becoming the best hedge fund out there. Because in the new zero NIM normal, where money can not be made by traditional lending verticals, the only option left is to outsmart the competition.

And with retail investors leaving the marketplace in droves, the only ones left to be outsmarted are other banks. In other words, the cannibalization phase is almost upon us. Which means that just like the Knight Capital “fat finger” led to the collapse of one of the biggest market makers, so more and more banks will soon set their sights on their peers (think Bear and Lehman circa 2008), in an attempt to turbocharge their returns in a field in which there are simply too many competitors for everyone to make the needed returns.

Of course, if in the meantime some lowly attorney general can score some brownie points by amputating a division that is no longer needed, and throwing some janitors in minimum security prison for 12-24 months, so much the better for their political career. Sadly, nobody at the top, certainly nobody at HSBC or any of the other big banks, will ever see true justice, at least not until they too suffer the fate of Dick Fuld and suddenly find themselves as the main dish at the ever shrinking predators’ ball.

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Barclays Threatened with $470 Millon Fine for Rigging Electricity Market

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Source: Reuters

U.S. regulators threatened to fine Barclays roughly $470 million to settle allegations that the bank and four traders manipulated California electricity markets, reviving the specter of a sector-wide crackdown on energy trading.

It could possibly be the biggest penalty ever levied by the Federal Energy Regulatory Commission (FERC), and potentially exceeds the fine Barclays paid over the Libor bid-rigging scandal that cost Chief Executive Robert Diamond his job.

The bank has 30 days to show why it should not be penalized for an alleged scheme of manipulating physical electricity prices at a loss in order to make profits in related positions in the swaps market, a strategy known as a “loss-leader”.

British bank Barclays said it would fight the agency, likely setting up a landmark legal battle that could set a precedent over whether the once-common trading ploy in commodity markets is illegal or simply ill-advised.

It will have huge implications across the market, as the FERC — which won expanded powers to tackle manipulation in 2005 after the California power trading scandal and related Enron meltdown — pursues similar investigations against companies including BP and Deutsche Bank.

The FERC also said four of the company’s power traders — Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith — have 30 days to show why they should not be assessed a total of $18 million in civil penalties.

It said their activity accounted for nearly a quarter of all trading in the next-day power market during the period, accruing gains of an estimated $34.9 million. Bank documents showed how the traders bragged about how they would “crap on” certain markets to profit in other ones, the order shows.

Barclays “strongly disagreed” with the order, which it said was “by nature a one-sided document, and does not reflect a balanced and full description of the facts.”

“We believe that our trading was legitimate and in compliance with applicable law,” Barclays spokesman Mark Lane said in an email. “We have cooperated fully with the FERC investigation, which relates to trading activity that occurred several years ago. We intend to vigorously defend this matter.”

The four traders left Barclays over the past five years for reasons unrelated to the investigation, according to a source familiar with the matter. The bank closed its Portland office in 2011 and effectively quit the Western power market this year.

It is the latest blow for Barclays, which has fired staff, clawed back pay and taken other disciplinary action after being fined $450 million by U.S. and British regulators over Libor.

New CEO Antony Jenkins, who took over at the end of July, is in the middle of a review to change the bank’s culture and lift profitability. The changes are due to be unveiled in February.

Earlier on Wednesday, Barclays announced that the U.S. Department of Justice and the Securities and Exchange Commission were investigating whether it was complying with U.S. laws in its ties with third parties who help it win or retain business.

The FERC order is tantamount to an indictment, suggesting the issue may go to court after settlement talks were unsuccessful, said Craig Pirrong, a University of Houston professor and expert in energy trade regulation.

EMBOLDENED FERC

The order threatens to stir up memories of the California power crisis, but the allegations involve a far more subtle trading strategy that industry veterans say had been common in global markets: using loss-making trades in benchmark physical commodity markets in order to profit from derivatives positions.

The “loss leader” gambit had until recently been viewed as outside the bounds of regulators, whose purview typically covered either physical markets or derivatives, but rarely both. Although the practice has diminished greatly in recent years as regulators get tougher, many veterans fear that old deals could come back to haunt them.

As well as the return of $34.9 million gains plus interest, the commission is also seeking a $435 million civil penalty.

“Scary stuff,” said one senior executive at a trading firm. “Which I guess is the point.”

The FERC first flexed its muscles earlier this year with a record $245 million settlement with power company Constellation Energy over similar allegations. Other agencies pursued larger fines against power merchants after the California debacle.

“FERC is getting tougher,” said Pirrong. He cautioned that there are “factual and conceptual challenges” in proving manipulation in court, but that isn’t stopping the agency.

“It is going to town on this theory of manipulation, and I would wager that any firm that traded both physical and financial power is at risk of a similar FERC action,” he said.

WARNING IGNORED

The FERC Office of Enforcement staff alleged Barclays engaged in a coordinated scheme to manipulate trading at four electricity trading points in the Western United States.

The order alleges that Connelly, hired in May 2006 to start a North American power market desk, hired a team of traders who ultimately came to dominate the market, making up 24 percent of all next-day fixed-price trading on the IntercontinentalExchange trading platform during the months in question.

The bank’s “total market concentration” was as much as 58 percent and no less than 10 percent in any given month, it says.

It then engaged in “loss-generating trading of next-day fixed-price physical electricity” at a number of key electricity hubs in order to pay off positions in the swaps market, where contracts are settled based on physical market prices.

The traders were aware that the trading was “likely unlawful”, and ignored the warning of the head of Americas commodity trading Joe Gold, who “made clear the practice was unacceptable”, according to the FERC order.

Experts say one of the biggest challenges in winning any manipulation cases is demonstrating that traders intentionally engaged in a losing trade to make bigger profits.

But, just as recorded telephone conversations between California power traders about driving up power prices for “grandma Millie” proved damning a decade ago, the agency used instant messages and emails to bolster its case.

Smith, for instance, described how he manipulated the Palo Verde market, according to the FERC order, and the “NP light” — or off-peak power (‘light’) in the North Path 15 (NP) market in northern California in an attempt to “drive the SP light lower.”

Levine asked colleagues to “keep the PV index up and the SP daily index down” while she was on vacation.

Mike Masters, co-founder of Better Markets and a frequent advocate for stronger rules, said it could be the “tip of the iceberg” as regulators probe more deeply into commodities.

“It’s a very significant fine and not just because of the dollar amount. It also highlights how banks and swap dealers were combining financial and physical positions in a predatory way to manipulate commodity markets,” he said.

“If it’s happened in power markets you can be sure it was also going on in crude oil and other markets like refined oil products,” Masters said.

(Reporting by Scott DiSavino, David Sheppard, Jonathan Leff and Karey Wutkowski; Editing by Gary Hill, Andrew Hay, Claudia Parsons and Paul Tait)

Italian Police Raid Barclays Over Rate Fixing

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Source: Sky News

Italian police have taken documents from a Barclays office in Milan as part of a probe into possible Euribor rate manipulation, according to Reuters.

It said the raid occurred as regulators investigated fixing fears of the eurozone equivalent of the scandal-hit, London-based Libor inter-bank lending rate.

The search was ordered by prosecutors in the southern city of Trani, who have opened a criminal probe into the possible manipulation of the Euribor rate.

The move comes after complaints were filed by two consumer groups, Adusbef and Federconsumatori.

Two judicial sources also confirmed the raid occurred last week, according to Reuters.

Documents, computer material and emails were seized, the consumer groups said in a joint statement.

They said the Milan raid occurred “with the aim of looking for evidence that Barclays also manipulated Euribor, as it did with Libor, with a negative impact on mortgage rates paid by Italians”.

Barclays was forced to pay a total of £290m in fines to UK and US regulators after it admitted fixing its Libor rate for commercial advantage.

The scandal forced the resignation of chairman Marcus Agius, chief executive Bob Diamond and chief operating officer Jerry del Missier.

All three men were later quizzed by MPs on the Treasury Select Committee.

The Libor scandal has sent shock waves through global banking, and embroiled both US Treasury Secretary Timothy Geithner and Bank of England governor Sir Mervyn King in the controversy.

Reuters: Prosecutors, regulators close to making Libor arrests

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Sun Jul 22, 2012 6:20pm EDT

(Reuters) – Prosecutors and European regulators are close to arresting individual traders and charging them with colluding to manipulate global benchmark interest rates, according to people familiar with a sweeping investigation into the rigging scandal.

Federal prosecutors in Washington, D.C., have recently contacted lawyers representing some of the suspects to notify them that criminal charges and arrests could be imminent, said two of those sources, who asked not to be identified because the investigation is ongoing.

Defense lawyers, some of whom represent suspects, said prosecutors have indicated they plan to begin making arrests and filing criminal charges in the next few weeks. In long-running financial investigations it is not uncommon for prosecutors to contact defense lawyers before filing charges to offer suspects a chance to cooperate or take a plea, these lawyers said.

The prospect of charges and arrests means prosecutors are getting a fuller picture of how traders at major banks allegedly sought to influence the London Interbank Offered Rate, or Libor, and other global rates that underpin hundreds of trillions of dollars in assets. The criminal charges would come alongside efforts by regulators to five major banks, and could show that the alleged activity was not rampant at the lenders.

“The individual criminal charges have no impact on the regulatory moves against the banks,” said a European source familiar with the matter. “But banks are hoping that at least regulators will see that the scandal was mainly due to individual misbehavior of a gang of traders.”

In Europe, financial regulators are focusing on a ring of traders from several European banks who allegedly sought to rig benchmark interest rates such as Libor, said the European source familiar with the investigation in Europe.

The source, who did not want to be identified because the investigation is ongoing, said regulators are checking emails among a group of traders and believe they are close to piecing together a picture of how the suspects allegedly conspired to make money by manipulating rates. The rates are set daily based on an average of estimates supplied by a panel of banks.

Continue Reading @ Reuters…