Feb 22 (Reuters) - Citigroup Inc and UBS AG , in a
series of disclosures to law-enforcement officials, have
provided crucial information to investigators in multiple
countries as part of inquiries into whether the world's biggest
banks manipulated a global benchmark interest rate, according to
people familiar with the situation.
The two banks, linked by a trader who worked at both, have
provided closely guarded details to U.S., UK, Japanese and
Canadian regulators about how their traders and those at other
banks allegedly sought to influence the yen-denominated London
interbank offered rate, known as Libor, according to people
familiar with the probes and court and regulatory documents.
Spokespeople for Citigroup and UBS declined to comment.
Details are now emerging from the investigations that
suggest the lone trader was at the heart of the alleged
improprieties at both UBS and Citigroup, according to sources.
They also show efforts by the two banks to cooperate in
identifying other banks involved in the alleged rigging.
The information has bolstered the investigation of an
alleged rate-rigging scheme, and the investigation has widened
to include at least five other banks and a prominent London
trading firm, according to these people and documents.
Now the investigation is expected to move beyond
yen-denominated trading, drawing in more financial institutions
and traders, according to people familiar with the situation.
The new disclosures mark a turning point in a year-long
investigation into how Libor is set. Despite mounting questions
surrounding the accuracy of the rate, it retains its influence
as a benchmark for $350 trillion in derivatives market
securities and is the basis for pricing about $10 trillion in
loans for everything from home mortgages to companies with shaky
The details also raise troubling questions about the rate's
reliability, and already have opened the door to numerous
lawsuits. According to documents filed in the probe in Canada,
for example, banks "entered into agreements to submit
artificially high or artificially low" Libor submissions "in
order to impact the yen Libor interest rates published by the
British Bankers Association."
The details were provided by an unidentified "cooperating
party" and occurred between 2007 and 2010. According to people
familiar with the matter, UBS is the bank cooperating in the
Canadian probe. The link to UBS was first reported by Bloomberg
Libor has existed since the 1980s, when banks developed it
as a benchmark for adjustable rates on corporate debt.
Calculated in a daily process overseen by the British Bankers'
Association, a UK trade association, it measures the interest
rates at which banks lend to each other and covers a range of 10
currencies and maturities of up to a year.
The rate also is considered a gauge of a bank's health.
Because banks may not want to reveal when they are ailing - and
thus paying higher rates to borrow - there is an incentive for
them to report a lower rate than they are actually paying. Banks
also could manipulate the rate for financial gain.
A BBA spokesman said it is committed to "retaining the
reputation and integrity of BBA Libor, which continues to be the
authoritative benchmark of the wholesale money market." The
spokesman said the calculation by Thomson Reuters is transparent
and that "rigorous standards" are used in scrutinizing and
governing Libor. A spokesperson for Thomson Reuters said the
company "is engaged by the BBA to calculate and distribute
Questions about Libor's reliability first surfaced in 2008.
But the first signs that regulators were investigating the rate
emerged last year, when UBS said it had received subpoenas from
U.S. regulators and was cooperating in return for conditional
immunity from investigators. So far, investors have sued more
than a dozen banks, alleging they were harmed by manipulation of
Now, the court and regulatory documents filed in Japan,
Canada, U.S. and the UK are revealing the contours of
overlapping, parallel investigations focused on alleged rigging
of the Libor rate for yen-denominated assets between 2007 and
2010 at Citigroup and UBS. The probes have led to the
suspensions or departures of nearly a dozen bankers so far.
The alleged problems at UBS and Citigroup appear to be
linked by a single trader, Thomas Hayes, who worked at UBS from
about 2006 to 2009 and at Citigroup from 2009 to 2010, according
to people familiar with the situation.
While at Citigroup, Hayes allegedly attempted to influence a
London desk to manipulate the yen-denominated Libor rate,
according to people familiar with the situation. When the
trading was spotted, Hayes was told to leave the bank and
Citigroup informed regulators, according to these people.
In December, Japan's regulator, the Financial Services
Agency, filed an administrative action against Citigroup and
suspended it from trading derivatives tied to Libor from January
10 to 23.
The FSA action didn't identify the two traders, but people
familiar with the situation said one of them was Christopher
Cecere, who oversaw G10 trading in Asia, and the other was
Hayes. In an interview with Reuters, Cecere said he left
Citigroup voluntarily with full bonus and that he has not been
questioned by regulators. Hayes could not be reached for
In a parallel investigation, documents filed by the Canadian
Competition Bureau, which investigates anti-competitive
activity, detail how a bank identified as a "cooperating party"
sought to manipulate yen Libor. UBS is the cooperating party,
according to people familiar with the situation.
The documents, filed recently with the Ontario Superior
Court, allege that "Trader A" and "Trader B," sought to
manipulate Libor by contacting traders in London at HSBC
Holdings PLC, Deutsche Bank AG, Royal Bank of Scotland Group
PLC, J.P. Morgan Chase & Co and Citigroup. Barclays Plc
separately has said in a company filing that it's under
investigation in the Libor inquiries.
Spokespeople for the six banks declined to comment.
In one instance, "Trader A" explained to a Royal Bank of
Scotland trader "how he had and was going to manipulate Yen
Libor." "Trader A" then instructed the RBS trader on what Libor
submission to make. The RBS trader "acknowledged these
communications and confirmed that he would follow through."
The documents filed in Canada also describe how a trader at
the cooperating party worked with a broker at ICAP PLC, a
prominent London trading firm. In November, ICAP said it had
received requests from regulators for information as part of
Libor probes and was cooperating. A company spokesman declined
(Reporting by Carrick Mollenkamp)
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