Banks eager to settle Libor charges

When Barclays’ Libor settlement last summer unleashed a political firestorm and a boardroom shake-up, its rivals were eager not to be the next bank in the line of fire. However, as the political fallout and reputational consequences are abating with each new fine, global banks under investigation for Libor manipulation have become keener to settle sooner rather than later.

A senior executive at a large global bank said: “We are coming to the point where we would like to get it behind us. But the problem is that regulators only have capacity to land one Boeing at a time.”

Royal Bank of Scotland is only the third bank after Barclays and UBS to pay a fine for manipulating benchmark interest rates over a period of several years.

The list of potential candidates is long. At least 10 regulators around the globe are investigating as many as 20 of the world’s biggest financial institutions.

However, the number of eventual settlements is expected to be lower as some probes might be dropped and in some cases the authorities may only investigate individual bankers. The UK’s Financial Services Authority, for example, is only probing another five banks and interdealer brokers.

“You will be seeing more institutions by the end of the year,” said Tracey McDermott, FSA enforcement director.

One person familiar with the investigations said he expected it to take some time before the next financial institution would settle.

Neither Deutsche Bank nor Citigroup, who both revealed in their regulatory filings that they were being probed by regulators, are believed to be in settlement talks and people familiar with the situation said they were not even close to such discussions. The same applies for Lloyds Banking Group, these people said.

Deutsche, Citi and JPMorgan staff were all referred to anonymously in the criminal complaint filed by the US Department of Justice in December when it charged Tom Hayes, a former trader at UBS and Citi. Hayes, a yen Libor trader, allegedly colluded with employees at the other banks.

Deutsche, which on Tuesday suspended five traders on top of the two it had dismissed more than a year ago, has in the past been speculated to be on top of the list.

However while the bank is close to finishing its internal review into the manipulation of several benchmark interest rates including Euribor, Libor’s European equivalent, an early settlement does not look likely.

One reason is that BaFin, the German financial regulator, is expected to take up to another two months to conclude its own investigation, highlighting the complexity of a global settlement with several authorities in the US and Europe.

Interdealer broker ICAP, whose employees talk daily to traders at the banks that set Libor rates, is also being investigated by the UK’s FSA for possible breaches of market conduct since at least March 2012, the Financial Times revealed last month.

Top executives of several banks have also been discussing the possibility of a joint global settlement at the World Economic Forum in Davos last month.

However, the prospects of such a move look remote at best. “Whether that’s going to fructify in the next six to 12 months - I would be surprised if it did,” Anshu Jain, Deutsche Bank’s co-chief executive, said last month.

— Financial Times