UK: Professional And Financial Lines - Weekly Bulletin - August 2012

Last Updated: 13 August 2012
Article by James Cooper

LIBOR manipulation coverage

Criminal Investigations

David Green QC, director of the SFO, announced on Monday that existing UK criminal law provides the basis to bring criminal charges over manipulation of LIBOR rates, which means individual traders could face criminals sanctions or jail time.

US prosecutors are preparing to file charges against traders from several banks who were involved in the rate-fixing as soon as October. So far, approximately 20 traders have been identified in regulatory filings, media reports or by banks as having been under investigation.

Regulatory Investigations

RBS Chief Executive Stephen Hester has stated that RBS will be the next bank after Barclays to receive a fine in relation to LIBOR rate-fixing. He said that he is unaware as of yet of the size of the fine, but the FSA investigation was "in process" and that "RBS is one of the banks tied up in LIBOR. We'll have our day in that particular spotlight as well." Mr Hester is expected to announce the reputational problem facing banks and highlight a programme within RBS to address corporate culture when the interim results are announced.

Peter Sands, Chief Executive of Standard Chartered bank, has disclosed that it is not being investigated by regulators for rate-fixing, and that no staff had been suspended for rate-fixing activities.

Deutsche Bank's supervisory board said that preliminary findings from an internal investigation into alleged rate-manipulation found that no current or former members of the management board behaved inappropriately; however, they have admitted that "a limited number" of staff were involved in the rate-rigging scandal. Deutsche Bank have announced that they will reduce staff numbers by approximately 1,900 due to the European economic downturn.

Societe Generale announced yesterday that it hasn't been accused of wrongdoing by regulators and that they are cooperating with all investigations. Despite this, a complaint was made against them on 30 July by an unidentified investor who asked prosecutors in Paris to look at possible market manipulation, distribution of false information and abuse of trust in relation to rate-fixing activities.

Swiss regulator FINMA said it's questioning UBS and Credit Suisse as part of an investigation over potential LIBOR rate-fixing. They said that they are "actively going after information that will enable us to make a judgment on what has happened." The banks are not under formal investigation, as they are legally obliged to cooperate with FINMA's requests. Should FINMA find that the banks were in violation of regulations, they can demand change at a managerial and organisational level.

Several banks under investigation for suspected rigging of EURIBOR rates are cooperating with EU antitrust regulators in anticipation of lower fines. The names of the banks under investigation by the European regulator have not yet been released, although if they are found to have breached EU anti-trust rules, they could face fines up to 10% of their revenue.

Commercial News

UBS has previously announced that it received conditional immunity or leniency for cooperating with authorities including the US Justice Department and Swiss Competition Commission for antitrust investigations into LIBOR, and maintains that the bank is not central to LIBOR investigations. In terms of making provisions for potential LIBOR fines by regulators, UBS has said that it considers itself "appropriately provisioned for all matters". UBS reported a second-quarter fall in profit of 58%.

Insurers may face claims relating to LIBOR lawsuits, according to Jardine Lloyd Thompson Group Plc, a publicly traded insurance broker in the UK. If legal action is upheld against a bank, banks will seek compensation from insurers.

Financial Services Reform

The UK government is seeking urgent reform of interest-rate setting following the rate-fixing scandal. The government has set the terms for a review of LIBOR rate-setting, to be carried out by regulator Martin Wheatley immediately, so that recommendations can be included in a draft law currently circulating through Parliament. The review will look at governance, the potential for alternative rate-setting procedures to be implemented, and how to move to a new system with as little impact as possible on long-term contracts pegged to LIBOR. A consultation document is expected 10 August, and Mr Wheatley's report by the end of September.

Senior figures in the government are discussing the possibility of buying out private investors in RBS (who own 18% of the bank), a move which would cost the government £5 billion. Chancellor George Osborne spoke out against this, stating that it would leave the taxpayer burdened with RBS's "toxic debt".

Litigation & Costs

Deutsche Bank is facing a lawsuit over manipulation of the Yen LIBOR rate and loss suffered as a result of the price of derivatives tied to the Euroyen benchmark. The lawsuit was filed in April in the US by parties whom the bank didn't indentify, who allege that the bank rigged the Yen LIBOR and TIBOR rates. The bank filed a motion to dismiss in June.

Italian consumer groups Adusbef and Federconsumatori, who filed complaints earlier this month, estimate that the rates-manipulation affected 2.5 million Italian households with EURIBOR-tied mortgages, costing a total of 3 billion Euros.

A Morgan Stanley analysts' report (12 July 2012) estimates that legal expenses stemming from LIBOR investigations could range from $59 million USD (for Lloyds Group) to as much as $1.04 billion for Deutsche bank and $1.06 billion for RBS.

On 30 July, Investor 33-35 Green Pond Road Associates LLC brought a lawsuit against multiple banks, including Bank of America, Credit Suisse and Barclays, for manipulation of LIBOR. Green Pond Road claims that the banks allegedly colluded to fix LIBOR rates. The lawsuit is, as yet, unquantified but any damages could be tripled under US anti-trust law.

On 25 July, Berkshire Bank, a New York lender, sued 21 banks including Bank of America, Barclays and Citigroup, for damages relating to manipulation of LIBOR rates. The lawsuit claimed for undisclosed compensation and punitive damages. The suit also included Japanese banks Norinchukin Bank and Bank of Tokyo-Mitsubishi among defendants.

Barclays coverage


Barclays offices in Milan were searched by Italian prosecutors who seized documents as part of an investigation into manipulation of EURIBOR rates. Police obtained documents dating from 2007 to 2012, including emails, in support of their investigations.

Democrat Sherrod Brown, a US Senator, asked the New York Federal Reserve on Wednesday to explain the actions it took to address rate-rigging problems with interbank lending rates, stating that "Barclays escaped any meaningful supervision over its US activities."

Business News

Barclays Chairman Marcus Agius has dismissed suggestions that Barclays should break itself up in order to demonstrate a separation from the tarnished reputation of the investment bank and its former Chief Bob Diamond.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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