A series of banking and financial institutions have been in the news recently over bid-rigging investments. Chase agreed to pay $211 million in their settlement in rigging bids on muni bonds which cheated 31 state governments, UBS agreed to pay $160.2 million for bid rigging, Wells Fargo got stuck paying $148 million to settle muni bid rigging, Bank of America paid $137 million, General Electric’s affiliates ended up paying $70.4 million in criminal damages for overcharging state and local governments on rigging muni bonds.
Today, we discover Barclays has surpassed all of the above by agreeing to pay around $450 million over having manipulated the Libor and Euro interbank offered rates. $200 million of the settlement will be paid to the U.S. Commodity Futures Trading Commission, $160 million will go to the criminal division of the U.S. Department of Justice and finally $92.8 million will be paid to Britain’s Financial Services Authority.
The LIBOR rate is a compiled rate for which banks pay each other on loans and is the rate of which is used throughout the financial system to set rates globally.
Back in March a trade body had announced they were reviewing Libor when it was discovered during the credit crisis, banks were lowering their benchmarks they used for pricing $350 trillion on home mortgage and corporate loan contracts.
Barclays employees were found manipulating rates which were submitted of the Libor Report even when asked about them. Senior officials at Barclays felt concerned that their image would appear as weak if the borrowing rate appeared too high in an effort to improve Barclay’s derivative trading position.
The Department of Justice received conversations of Barclay Traders working lower trading rate deals by using language of willing to pay beyond the effective date on the bid. Along with the fact banks were working the situation to merely improve their derivate position.
The significance of this action is that almost every city and town in America has investments in Libor, therefore, with banks lowering their rates just to manipulate their trading positions, in effect were also cheating communities out of large sums of money.
The question that also now surfaces from these scandals is if financial advisors should then have to reveal their payments they receive for steering municipal bond business with banks or underwriters. With this action it would then require the public disclosure of financial incentives, while cities, counties, and other government agencies are still handing over their bond deals to these bid rigging financial institutions.
There will be more to come on banks and certainly criminal charges could come as well in this recent incident with Barclays. However, it could take months to discover the next one to found guilty by regulators in this global fixing rate scandal.
Presently, there are 20 additional banks of which are being probed by regulators from London to Japan and from Brussels to North America. The key is not the discovery of others but how much the firm is willing to cooperate beyond their legal requirements.
With UBS and the Swiss Bank there were traders that have been suspended and in cooperating with regulators were provided partial immunity in return. However, others were fired, suspended or staff asked to leave when it was found through an internal investigation there was an attempt to manipulate Libor by JPMorgan, RBS, the Deutsche Bank and the inter-dealer broker ICAP.
This scandal today has damaged the credibility of the reputation of London because they were perceived for their trust and integrity in the London market. The public is outraged that these banking institutions have walked off with millions of pounds through rigging the market.