The Libor Scandal: Adding Up a Scorecard of Shame

Monday, 11 Feb 2013 08:20 AM

By John Morgan

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The internal culture at some of the world’s biggest banks, the “moral bankruptcy” among some London Interbank Offered Rate (Libor) traders and the scandal-tinged settlements with regulators are starting to seem like ordinary matters, according to a scathing commentary by The Economist.

For those keeping track, experts believe Deutsche Bank may be next to go through the Libor wringer, and reportedly could be fined billions, while yet more big banks may also have their spot reserved in the lineup of suspects.

“There is now a sense of routine about these settlements: the early leaks, the embarrassing e-mails, the big fines. They can make Libor seem like just another problem for the banks to manage,” The Economist wrote.

Declassified: 
‘Financial War’ Could Wipe Out 50% of Your Wealth’

According to Spiegel, the rate-rigging scandal around the Libor could be extremely expensive for Deutsche Bank, and the bank’s co-CEO, Anshu Jain, could be dragged into the affair.

Spiegel reported the “costs for the Frankfurt-based bank could add up to billions of euros. The EU Commission has filed several antitrust suits against Libor banks, and a large number of investors are suing for damages — with more possible lawsuits looming in the future.”

Major banks implicated in the Libor affair are now talking about an industrywide settlement, similar to the one that was concluded with the U.S. tobacco industry in the late 1990s, the German magazine said.

Bloomberg reported Deutsche Bank’s Jain as saying bank CEOs actually discussed a global settlement of the matter at the recent World Economic Forum in Davos, Switzerland.

Thus far, according to The Economist, the scorecard of banks settling with regulators and their fines reads: Royal Bank of Scotland, $475 million to U.S. regulators and $137 million to British regulators; UBS, a total of $1.5 billion; and Barclays, approximately $458 million.

The Economist commented that the “moral bankruptcy of traders implicated in the rigging of (Libor), one of the world’s most important interest rates, is matched only by the incompetence with which they covered their tracks.”

On Friday, Reuters said unnamed sources close to the probe identified Citigroup, JPMorgan Chase and U.K. interdealer broker ICAP as among those soon to face the regulatory spotlight. Five Deutsche Bank executives were suspended last week in the matter, according to various media accounts.

Voluminous emails and computer message exchanges collected by regulators allege traders colluded for years with peers at other banks and brokers to rig Japanese, Swiss and U.S.-denominated Libor, a benchmark used to price some $500 trillion worth of contracts from derivatives to credit cards, according to Reuters.

The Economist suggested the scandal may ultimately force bank bosses to pay more attention to compliance and culture.

“A lot of the bank CEOs I talk with don’t worry that regulatory change could shut them down,” said Ted Moynihan of Oliver Wyman, a consultancy. “But they see the conduct issue as potentially existential.”

Declassified: ‘Financial War’ Could Wipe Out 50% of Your Wealth’

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