Barclays’ Bob Diamond
(CEO) and Jerry del Missier (COO) have stepped last Tuesday, due to
the ongoing LIBOR / EURIBOR scandal.
“I joined Barclays 16 years ago because I saw
an opportunity to build a world class investment banking business.
Since then, I have had the privilege of working with some of the most
talented, client-focused and diligent people that I have ever come
across. We built world class businesses together and added our own
distinctive chapter to the long and proud history of Barclays. My
motivation has always been to do what I believed to be in the best
interests of Barclays. No decision over that period was as hard as
the one that I make now to stand down as Chief Executive. The
external pressure placed on Barclays has reached a level that risks
damaging the franchise – I cannot let that happen.
I am deeply disappointed that the impression
created by the events announced last week about what Barclays and its
people stand for could not be further from the truth. I know that
each and every one of the people at Barclays works hard every day to
serve our customers and clients. That is how we support economic
growth and the communities in which we live and work. I look forward
to fulfilling my obligation to contribute to the Treasury Committee’s
enquiries related to the settlements that Barclays announced last
week without my leadership in question.
I leave behind an extraordinarily talented
management team that I know is well placed to help the business
emerge from this difficult period as one of the leaders in the global
banking industry.”
"My 15 years at
Barclays have been a time of great accomplishment, both for me
personally and for the bank. I am grateful for the opportunities that
were provided to me and proud of what we achieved. We built one of
the premier global investment banks from scratch – something that
we are all very proud of. The firm is as strong today as it ever has
been and is incredibly well placed to succeed within the post
financial reform competitive landscape. I have every confidence that
the Board and Executive Management of Barclays will be successful in
executing their plans, and I wish them the best of luck in doing so."
In this article, I would
like to analyze the order of the US Commodity Futures Trading
Commission (CFTC) adjudging Barclays to pay a civil monetary penalty
of 200 MUSD.
Introduction
The central stipulations
for the FSA fine are the following:
I have discussed the specific obligations that a LIBOR / EURIBOR contributor panel bank must respect, in the previous posts in February 2012.
CFTC’s decision is
structured in 3 main parts:
Facts
- Barclays, through the acts of its swaps traders and submitters, made false LIBOR reports and attempted to manipulate LIBOR. / Barclays attempted to manipulate EURIBOR, made false EURIBOR reports and coordinated with other banks in its attempts to manipulate EURIBOR.
The
CFTC first describes that the persons in charge of submitting
Barclays’ LIBOR and EURIBOR rates were very experienced employees,
having 25 years and 20 years of experience in the respective money
markets. These people acted in an environment that Barclays had not
regulated internally: “Barclays did not have specific internal
controls or procedures, written or otherwise, regarding how LIBOR /
EURIBOR submissions should be determined or monitored. Barclays also
did not require documentation or the submitters’ LIBOR
determinations.”
The
order then describes how Barclays' swap traders influenced Barclays'
LIBOR / EURIBOR submitters on a regular basis in order to manipulate
the respective base rate. It emphasizes that such attempts were
common practice and publicly discussed among swap traders before
contacting the submitters: “In fact, traders would often shout
across the trading desk to fellow traders to confirm there were no
conflicting requests before they sent their requests to the EURIBOR
submitters, and, on occasion, the traders discussed their requests
with trading desk managers.”
Next,
the CFTC mentions that Barclays' swap traders also acted repeatedly
on behalf of external (former Barclays) swap traders when trying to
manipulate the respective base rate.
Many
examples of communications between swap traders and submitters are
cited, outlining clearly the ongoing collusion. The examples resemble
pretty much those that I have cited in my last post on the FSA's fine
on Barclays.
- During the financial crisis, Barclays senior management directed that LIBOR submissions be lowered.
The
CFTC first describes the illiquid situation in the London inter-bank
money market during the financial crisis. It then goes on by
outlining the position that Barclays' LIBOR submitter had taken
during that time: As a matter of fact, he had expressed his view
that, given the illiquid situation in the money market, Barclays'
submissions were “unrealistically low”. However, the
quotes of other participating banks being still lower and, therefore,
even more unrealistic, he concluded that “if [Barclays] were to
submit higher, accurate LIBORs / EURIBORs, then the market or press
would report that Barclays was experiencing difficulty in funding
itself”. The CFTC emphasizes the negative media coverage on
Barclays' constantly higher LIBOR submissions.
To
Barclays' discharge, the CFTC recognizes that “certain senior
managers within [Barclays] instructed the USD LIBOR submitters and
their supervisor to lower Barclays' LIBOR submissions, so that they
were closer in range to the submitted rates by other banks but not so
high as to attract media attention”. In addition, according to
the CFTC, these senior managers “frequently discussed with the
USD LIBOR submitters and their supervisors the specific rate to be
submitted, in order to ensure they were in compliance with the
directive”.
Another
important aspect in this section is the fact that BBA representatives
and FSA stuff members were in contact with Barclays senior treasury
managers at that time and discussed the artificially low rates of
certain panel banks. However, according to the CFTC, “Barclays
did not disclose at this time that is was lowering its LIBOR
submissions pursuant to a management directive”.
Barclays
treasury manager: “We're clean, but we're dirty-clean, rather
than clean-clean”.
BBA
representative: “No one's clean-clean”.
The
issue of Barclays submitting patently false rates was raised to the
compliance function at that time. Nevertheless, the compliance
officer in charge did not follow up internally on this issue.
It
should be noted that the allegation of lowering base rate submissions
only challenges Barclays' LIBOR submissions; no similar
allegation is made in relation to EURIBOR submissions.
Legal
Discussion
- Barclays made false, misleading or knowingly inaccurate reports concerning the costs of borrowing unsecured funds.
- Barclays attempted to manipulate LIBOR and EURIBOR.
- Barclays aided and abetted the attempts of other traders at other banks to manipulate EURIBOR.
- Barclays is liable for the acts of its agents.
CFTC’s
legal discussion is quite short. The emphasis in this case is clearly
on the factual side and the legal appreciation is not a major concern
here.
Order
- Barclays shall cease and desist from violating the Commodity Exchange Act.
- Barclays shall pay a civil monetary penalty of 200 MUSD.
- Barclays shall comply with specific conditions and undertakings: The CFTC strives to protect the integrity and reliability of Barclays’ future benchmark interest rate submissions by describing detailed rules of how submissions shall be determined, how supervisions, monitoring, and auditing shall be carried out, and how internal firewalls shall be put in place.
Resource:
- CFTC order No. 12-25 dated June 27, 2012
