UK: Professional And Financial Lines Weekly Bulletin - September 2012

Last Updated: 11 September 2012
Article by James Cooper

LIBOR manipulation coverage


Investigators in the US and UK are still looking into the LIBOR manipulation allegations; however, they are not releasing key information required to estimate losses as a result of rate-fixing activities. Reports have stated that it will be almost impossible for analysts and potential claimants to assess actual damage, and the proportions that each bank should bear, without complete data on actual borrowing costs. Records of observable transactions would allow for objective estimates of by how much the banks' LIBOR quotations were "off" on any given day, and reporters are urging regulators to release this data to the public. Bloomberg reports that many are already trying to recoup suspected underpayments (on mortgages, corporate bonds and derivatives tied to the benchmark) through litigation.

Deutsche Bank Co-CEO Anshu Jain has announced that there will be a full clarification of the bank's involvement in the LIBOR scandal, although has not indicated when, adding that the bank is undertaking a thorough investigation into past procedures in relation to LIBOR practices.

Credit Agricole maintains that it is not involved in the LIBOR rate-fixing scandal and that, despite not being concerned about its involvement (since it only became a contributor to the rate-setting system in February 2011), it has been cooperative in providing authorities with requested documents relating to EURIBOR rates.

The Federal Reserve Bank of New York has been given additional time to comply with a congressional request for information relating to staff communications with rate-setting banks between August 2007 and July 2012. The US central bank has come under increased scrutiny following the discovery that it was aware of rate-fixing practices since 2008. Documents released by the New York Fed showed that a memo was sent in June 2008 by Mr Tim Geithner, the president of the regional Fed bank at the time, to Bank of England governor Mervyn King raising concerns as to how LIBOR was being calculated. The same concerns were also raised by Geithner to other US regulators, including the SEC and the CFTC.

US state officials continue to instigate probes of their own into the scandal, with individuals such as Ms Janet Cowell, elected treasurer for the state of North Carolina, quoted as saying in the context of the LIBOR manipulation investigations: "We think this could be as big as the mortgage crisis settlement... and that we should be aggressive on this", referring to the $25 billion settlement that the nation's biggest banks entered into with state attorneys general.

Barclays coverage


Barclays is facing an additional criminal probe by the SFO into fees it paid to Qatar's sovereign wealth fund (Qatar Holding LLC) in 2008, whilst the bank attempted to raise money to avoid a government bail-out. This new investigation surfaces as regulators continue to investigate former Barclays' employees for LIBOR manipulation, and SFO criminal investigations are ongoing. The FSA is conducting its own investigation into whether Barclays adequately disclosed advisory fees payable under commercial agreements around the time of the capital raising in 2008. Four current or former senior executives are at the centre of those investigations, including John Varley, Barclays' former chief executive.

Two senior Barclays staff, a director and a top trader, have left the bank in the US according to regulatory filings. Both had allegedly engaged in communications regarding inappropriate requests concerning LIBOR.


As highlighted at the time of going to press last week, Barclays has named insider Anthony Jenkins, a retail banker and former head of Barclaycard, as its CEO. Mr Jenkins is set to announce his strategic plans to take Barclays forward in the first quarter of 2013, and has said that, despite recent mistakes, Barclays is a "strong, universal bank". Despite initial statements from Barclays' board that they couldn't replace Bob Diamond with a candidate from its investment bank, Mr Jenkins became front-runner for the position last week, when Bill Winters, former JP Morgan banker, withdrew from the selection process. Sir David Walker, an external hire, has been named as Marcus Agius' replacement as Chairman.


There has been much speculation this week about a fresh business model strategy for Barclays, which some would see as the bank veering away from its 'risky' investment banking operations under the helm of a 'retail man' in the shape of Antony Jenkins. He has not one but two current SFO inquiries to handle, as well as a great deal of regulatory scrutiny both at home and abroad on the matter of LIBOR alone, as well as the day-to-day running of such a behemoth shop as Barclays.

The European Commission has also just published a consultation paper seeking views on the regulation of benchmarks and market indices, the deadline for comments to which is 15 November 2012. The outcome of such a consultation ultimately should ensure the future integrity of benchmarks by adapting the relevant legal frameworks in such a way as to make them watertight. That will no doubt be the aim, however the consultative process is expected to be far from straightforward.

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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