[Vision2020] When Cannibalism Is Good

[Art Deco]

[image: DealBook - A Financial News Service of The New York
Times]<http://dealbook.nytimes.com/>
August 5, 2012, 9:37 pmAs Libor Fault-Finding Grows, It Is Now Every Bank
for ItselfBy AZAM AHMED
<http://dealbook.nytimes.com/author/azam-ahmed/> and BEN
PROTESS <http://dealbook.nytimes.com/author/ben-protess/>

Major banks, which often band together when facing government scrutiny, are
now turning on one another as an international investigation into the
manipulation of interest rates gains momentum.

With billions of dollars and their reputations on the line, financial
institutions have been spreading the blame in recent meetings with
authorities, according to government and bank officials with knowledge of
the matter. While acknowledging their own wrongdoing, institutions are
pointing out actions at other banks that they believe are worse - and in
some cases, extend to top executives.

One official involved in the case said that banks are emphasizing that
"we're not as bad as the next guy."

The Swiss bank UBS<http://dealbook.on.nytimes.com/public/overview?symbol=UBS&inline=nyt-org>,
which has a history of regulatory run-ins, has shared e-mails, instant
messages and other information suggesting it had colluded with traders
at Deutsche
Bank<http://dealbook.on.nytimes.com/public/overview?symbol=DB&inline=nyt-org>,
HSBC<http://dealbook.on.nytimes.com/public/overview?symbol=HBC&inline=nyt-org>and
the
Royal Bank of Scotland<http://topics.nytimes.com/top/news/business/companies/royal-bank-of-scotland-group-plc/index.html?inline=nyt-org>to
manipulate key interest rates, according to court documents and bank
employees. In talks with authorities, HSBC is providing its own account of
the activities, according to a lawyer briefed on the matter.
Citigroup<http://dealbook.on.nytimes.com/public/overview?symbol=C&inline=nyt-org>has
also detailed rate manipulation with other banks.

When the British bank
Barclays<http://dealbook.on.nytimes.com/public/overview?symbol=BCS&inline=nyt-org>recently
negotiated a settlement with authorities, it highlighted that
other European institutions took part in the rate-rigging scheme, said
officials close to the case. Like UBS, Barclays has provided information on
activities involving HSBC and Deutsche Bank.

Several banks are using Barclays' $450 million settlement as a guidepost in
preliminary discussions with authorities. JPMorgan
Chase<http://dealbook.on.nytimes.com/public/overview?symbol=JPM&inline=nyt-org>and
Citigroup are each emphasizing to authorities that their chief
executives were not implicated in the wrongdoing as in the case of
Barclays, and therefore the banks deserve to be treated less severely,
according to the officials.

A Deutsche Bank manager who oversaw traders is facing scrutiny, according
to a person involved in the case. However, a Deutsche Bank spokesman said
no managers or top executives had been aware of any rate manipulation,
adding that the investigation was continuing.

JPMorgan, Deutsche Bank, HSBC and Citigroup have said they are cooperating
with officials.

Authorities around the world are investigating more than 10 big banks for
their roles in setting global interest rates like the London interbank
offered rate<http://topics.nytimes.com/top/reference/timestopics/subjects/l/london_interbank_offered_rate_libor/index.html?inline=nyt-classifier>,
or Libor. Such benchmarks underpin trillions of dollars of financial
products, including mortgages and student
loans<http://topics.nytimes.com/top/reference/timestopics/subjects/s/student_loans/index.html?inline=nyt-classifier>
.

Regulators are examining whether banks colluded to move the rates up or
down to get extra profits and limit losses on their trading positions. Some
banks are also under investigation for reporting artificially low rates to
make themselves appear financially healthier.

When banks first started conducting internal investigations at the behest
of regulators two years ago, they figured the potential penalties would be
manageable, according to bank officials.

But the size of the Barclays settlement and the growing public outcry have
left banks scrambling to limit their culpability as the threat of criminal
actions increases. Part of the banks' problem is that their internal
investigations have created a road map that authorities are using to pursue
criminal and civil cases.

Those findings provide a detailed portrait of the wrongdoing.

Interviews with dozens of government and bank officials who spoke on the
condition of anonymity because the investigation is developing, and a
review of court documents and regulatory filings show varying degrees of
exposure. Banks like UBS, Deutsche Bank and Citigroup uncovered that
employees had worked with traders at other firms to influence rates,
according to government and bank officials. A small number of institutions,
including Credit
Suisse<http://dealbook.on.nytimes.com/public/overview?symbol=CS&inline=nyt-org>and
Bank
of America<http://dealbook.on.nytimes.com/public/overview?symbol=BAC&inline=nyt-org>,
found more limited actions.

The extent of the evidence has created an every-bank-for-itself attitude.

The financial industry often tries to negotiate a common deal to avoid
getting singled out for bad behavior. This year, five banks collectively
struck a multibillion-dollar agreement with federal authorities to address
foreclosure<http://topics.nytimes.com/top/reference/timestopics/subjects/f/foreclosures/index.html?inline=nyt-classifier>abuses.

With the rate investigation, institutions are not sharing information or
even discussing the case with rivals, according to lawyers involved in the
matter. In part, they do not want to appear to have close ties with their
rivals, since such cozy relationships are part of the government's inquiry.

"There is no information-sharing among banks unlike the past 15 years of
federal investigations," said a lawyer involved in the case.

So far, Barclays has borne the brunt of the fallout. In June, the British
bank settled with British and American authorities for reporting false
rates to bolster its profits and project a rosier picture of its financial
position. The settlement prompted the resignation of top executives,
including the chief executive Robert E. Diamond
Jr.<http://topics.nytimes.com/top/reference/timestopics/people/d/robert_e_diamond_jr/index.html?inline=nyt-per>,
and helped to erase more than $3 billion of the bank's market value.

At first, Barclays rejected a settlement offer by the Commodity Futures
Trading Commission<http://topics.nytimes.com/top/reference/timestopics/organizations/c/commodity_futures_trading_commission/index.html?inline=nyt-org>,
the regulator leading the investigation, according to officials close to
the case. The bank believed the terms were unfavorable, said a lawyer
involved in the matter. As the agency prepared to take the case to court,
negotiations resumed. While Barclays secured a modestly smaller penalty,
the bank still paid record fines.

In trying to work out a deal, the British bank offered information on the
multiyear scheme with Deutsche Bank, HSBC, Société
Générale<http://dealbook.on.nytimes.com/public/overview?symbol=SCGLY&inline=nyt-org>and
Crédit Agricole, according to government and bank officials. Also, a
senior trader at Barclays tried to manipulate the Euro interbank offered
rate, or Euribor.

Other cases are expected to follow. The Justice Department is aiming to
file criminal actions against two banks before the end of the year and is
preparing to arrest former traders at Barclays and other banks, according
to government officials. In addition, state attorneys general and local
district attorneys have approached the Justice Department in recent weeks,
seeking a role in the case.

Since the Barclays settlement, banks have been reassessing their defense
strategies and reaching out to authorities. Officials warn that all talks
with the banks are preliminary, and no settlement deals are imminent.

After targeting Barclays for rate manipulation four years ago, regulators
gradually turned their attention to a wide swath of banks.

In a 2010 letter, the Commodity Futures Trading Commission contacted a
small group of banks, including UBS. The regulator quickly expanded the
list, sending a memo to all 16 institutions that helped set Libor rates at
the time. The agency ordered the firms to hire outside attorneys to conduct
an investigation into suspected rate manipulation, according to bank and
regulatory officials.

After examining the extent of its wrongdoing, UBS moved swiftly to strike
an immunity deal with government authorities. In its inquiry, the Swiss
bank uncovered that one of its former traders, Thomas Hayes, had apparently
worked with employees at Deutsche Bank, HSBC and the Royal Bank of Scotland
to influence rates and make profits, according to bank officials and court
documents. At times, the traders communicated via instant messages on
Bloomberg machines, the court documents show.

UBS was eager to cooperate in part because the government typically only
grants immunity to the first party to step forward in a case. The Swiss
bank also wanted to avoid the harsh spotlight of a prosecution or a
settlement, according to a bank official. The bank has been at the center
of several financial scandals, including a rogue trader and an illegal tax
shelter scheme.

Citigroup has been forthcoming with regulators, as well. After leaving UBS,
Mr. Hayes moved to Citigroup where the problems continued, according to
bank officials with knowledge of the case. The bank has handed over
documents on that rate-rigging group.

Citigroup is emphasizing to authorities that the wrongdoing did not reach
the upper levels of management, as it did at Barclays. Based on its
internal investigation, the bank told regulators and its audit committee
that neither its chief executive, Vikram S.
Pandit<http://topics.nytimes.com/top/reference/timestopics/people/p/vikram_s_pandit/index.html?inline=nyt-per>,
nor its chief financial officer, John Gerspach, was implicated, according
to a bank official and a lawyer with knowledge of the matter. The bank's
investigation showed that its wrongdoing is mainly centered on another key
benchmark, the Tokyo interbank offered rate.

In contrast, Deutsche Bank is facing heavier scrutiny in the United States.
The German institution has been named in the rate conspiracies outlined by
Barclays and UBS, as has HSBC. In working with regulators, HSBC is making
employees available to government investigators and turning over e-mails
and other information, according to one person with knowledge of the matter.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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