Barclays was busted for manipulating the LIBOR. The London Interbank Offered Rate is the interest rate banks charge to lend to each other. This key interest rate sets most banking transactions, including retail. Manipulating the Libor is like being a casino with crooked roulette wheels and loaded dice.

Barclays has been fined £290m ($450m) for trying to manipulate a key bank interest rate which influences the cost of loans and mortgages.

Barclays' Chairman just stepped down:

Marcus Agius will step down from Barclays as soon as Monday, amid fallout from the bank's $453 million settlement of probe into Libor manipulation.

On Wednesday the U.K's Financial Services Authority announced to the world Barclays manipulated the Libor and was fined. Below is some of the FSA's press release:

The FSA has today announced that it has found serious failings in the sale of interest rate hedging products to some small and medium sized businesses (SMEs). We believe that this has resulted in a severe impact on a large number of these businesses. In order to provide as swift a solution to this problem as possible we have today confirmed that we have reached agreement with Barclays, HSBC, Lloyds and RBS to provide appropriate redress where mis-selling has occurred.

Interest rate hedging products can protect bank customers against the risk of interest rate movements and can be an appropriate product when properly sold in the right circumstances.  During the period 2001 to date, banks sold around 28,000 interest rate protection products to customers.

These products range in complexity from comparatively simple “caps” that fixed an upper limit to the interest rate on a loan, through to the more complex derivatives such as “structured collars” which fixed interest rates within a band but introduced a degree of interest rate speculation.

Over the past two months the FSA has conducted a review of these sales.  We have reviewed a significant amount of documentation from the firms (including sales files, customer complaints and taped conversations). We have also talked to over 100 customers who have come forward.

We have found a range of poor sales practices including:

• Poor disclosure of exit costs;
• Failure to ascertain the customers’ understanding of risk;
• Non advised sales straying into advice;
• “Over-hedging” (i.e. where the amounts and/or duration did not match the underlying loans); and
• Rewards and incentives being a driver of these practices.

The FSA's Barclays final notice is the real horror show. Contained within are the evidence details. Clearly this has been going on for a long, long time. We've excerpted some of the emails that are extremely damning. The below excerpts show it is routine practice to manipulate the LIBOR in order to achieve derivatives trades gains and other large deals and transactions.

The FSA has identified that:

i.  between January 2005 and May 2009, at least 173 requests for US dollar LIBOR submissions were made to Barclays’ Submitters (including 11 requests based on communications from traders at other banks);

ii.  between September 2005 and May 2009, at least 58 requests for EURIBOR submissions were made to Barclays’ Submitters (including 20 requests based on communications from traders at other banks); and

iii.  between August 2006 and June 2009, atleast 26 requests for yen LIBOR submissions were made to Barclays’ Submitters.

At least 14 Derivatives Traders at Barclays made these requests. This included senior Derivatives Traders. In addition, trading desk managers received or participated in inappropriate communicationson, at least, the following occasions:

i.  on 22 March 2006, Trader A (a US dollar Derivatives Trader) stated in an email to Manager A that Barclays’ Submitter “submits our settings each day, we influence our settings based on the fixings we all have”.Manager A took no action as a result of this email;

ii.  on 5 February 2008, Trader B (a US dollar Derivatives Trader) stated in a telephone conversation with Manager B that Barclays’ Submitter was submitting “the highest LIBOR of anybody […] He’s like,I think this is where it should be. I’m like, dude, you’re killing us”. Manager B instructed Trader B to: “just tell himtokeep it, to put it low”. Trader B said that he had “begged” the Submitter to put in a low LIBOR submission and the Submitter had said he would “see what I can do”; and

iii.  in July 2008, euro Derivatives Traders sent emails to Manager C indicating that they had spoken to Barclays’ Submitter about the desk’s reset positions and he had agreed to assist them. This followed instructions from Manager C for the traders to speak to the Submitter.

 

Barclays’ Derivative Traders would request high or low submissions regularly in emails, for example on 7 February 2006, Trader C (a US dollar Derivatives Trader) requested a “High 1m and high 3m if poss please. Have v. large 3m coming up for the next 10 days or so”. Trader C also expressed his preference that Barclays would
be “kicked out” of the average calculation. Trader C’s aim was therefore that Barclays’ submissions would be high enough to be excluded from the final average calculation, which could have affected the final benchmark rate.

 

On Friday, 10 March 2006, two US dollar Derivatives Traders made email requests for a low three month US dollar LIBOR submission for the coming Monday:

i.  Trader C stated “We have an unbelievably large set on Monday (the IMM). We need a really low 3m fix, it could potentially cost a fortune. Would really appreciate any help”;

ii.  Trader B explained “I really need a very very low 3m fixing on Monday – preferably we get kicked out. We have about 80 yards[billion] fixing for the desk and each 0.1 [one basis point]lower in the fix is a huge help for us. So
4.90 or lower would be fantastic”. Trader B also indicated his preference that Barclays would be kicked out of the average calculation; and

iii.  On Monday, 13 March 2006, the following email exchange took place:

Trader C:  “The big day [has]arrived… My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?”

Submitter:  “I am going 90 altho 91 is what I should be posting”.

Trader C:  “[…] when I retire and write a book about this business your name will be written in golden letters […]”.

Submitter:  “I would prefer this [to]not be in any book!”

Matt Taibbi rightly calls LIBORgate a huge, big f@#kin' deal and points out:

If banks were artificially lowering the rates to beef up their trading profiles, that means communities all over the world were cheated out of ungodly amounts of money.

There are all sorts of products related to the LIBOR including $554 trillion in interest rate based derivatives. Even the currency exchanges are set by the Libor. That's why this is such a big deal, manipulating it is like the great big global ripoff. Everyone and everything is affected. Who needs a gun to rob a bank? The real way to steal is to own one.

The Financial Times reports regulators knew about LIBOR manipulation at least since 2007. That's before the financial crisis of 2008.

Bankers, traders and investors complained to US and UK central banks and regulators that false information was being supplied for the setting of a critical London lending rate as early as 2007.

But only the Commodity Futures Trading Commission, the US regulator, jumped on the issue and started demanding information about the setting of Libor, the London interbank offered rate, which is the benchmark for $360tn in mortgages, credit cards and other contracts worldwide.

There are over 20 banks involved in the ongoing investigation and already at RBS heads have rolled. Of course those are the heads of sacrificial lambs, the modus operandi for every corruption incident exposed.

Seems the blame game is now in full bloom as well. The BBC reports Barclays' managers believed they were lying about their dealings, because the Bank of England told them to.

In making false submissions about their borrowing costs, managers at Barclays believed they were operating under an instruction from Paul Tucker, deputy governor of the Bank of England, I have learned.

This belief was fostered after a telephone conversation in the autumn of 2008 between Mr Tucker and Bob Diamond, who at the time ran Barclays' investment bank, Barclays Capital, and is today chief executive of Barclays.

Mr Tucker did not issue this instruction. But he and Mr Diamond have different recollections of their conversation. So what Mr Diamond recalls about this telephone conversation may turn out to be the most explosive and important part of his testimony to MPs on the Treasury Select Committee, which will take place on Wednesday.

Now this is an amazing revelation. The Bank of England Governor, King, just railed on the U.K. banking system as corrupt and deceitful:

Bank of England Governor Mervyn King said the “deceitful manipulation” of Libor reveals wider cultural flaws in Britain’s banking system, as officials warned bank chiefs need to rebuild trust.

“Everyone now understands that something went very wrong with the U.K. banking industry,” King said at a press conference to present the central bank’s Financial Stability Report in London today. “From excessive levels of compensation, to shoddy treatment of customers, to a deceitful manipulation of one of the most important interest rates, we can see that we need a real change in the culture of the industry.”

Over and over and over again we see disaster, spawned by corrupt practices, because there is no firewall between commercial and investment banking. It's so obvious we need Glass-Steagall, the 1933 U.S. banking law which separates commercial banks from securities & investment firms, re-instated. Instead we get no derivatives reforms and even the Swiss Cheese passed by Congress delayed and watered down, not implemented.

The hits just keep on coming. Earlier we saw a massive bid rigging in the municipal bond market. Just the other day JPMorgan Chase's derivatives loss had widened to $9 billion. Lest we not forget MF Global and the list just goes on and on. In fact we have about 4000 articles on this site detailing most of the financial follies parade^©.

What can we do except be dismayed at the dismantling of those Great Depression era laws some very wise people set up to stop these shenanigans. What was that about history and doomed to repeat?

While we're repeating, for some laughs at this latest Bankster rigged casino game exposed, check out LIBOR-4-1-9.