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Mark Gongloff

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Citigroup Manipulated Libor More Than Any Other U.S. Bank: Reports

Posted: 07/20/2012 12:06 pm

So far Barclays has been the sad, British face of the Libor scandal, but there could soon come a day when an American bank could be the poster child for Libor manipulation. USA! USA!

Fortune's Stephen Gandel wrote on Friday about not one, not two, but three different studies that use charts and math to show that, of all the many banks just stone-cold manipulatin' Libor during the financial crisis, the champion Libor-mangler of all was apparently, drumroll please, Citigroup.

Citi did not respond to Fortune's request for a comment. It is no doubt one of 16 different banks, including fellow Americans Bank of America and JPMorgan Chase, getting the stinkeye from regulators over Libor.

Libor, for you Libor virgins who have somehow accidentally stumbled into this story, is an interest rate at which banks lend money to each other for short periods. It's the basis for hundreds of trillions of dollars' worth of loans and derivative contracts. Kind of a big deal, then.

The funny thing about this super-important rate is that it is almost completely bullshit. The banks who set Libor are on an honor system to report their borrowing costs, so you can see where this is going. Barclays was accused of manipulating Libor up and down, sometimes to help its traders make more money, other times to make its financial condition look healthier. Other banks are under investigation for allegedly having a cartel of Libor manipulators, helping each other make money on trades.

During the financial crisis, no bank in its right mind wanted to be seen as having to pay a high interest rate to borrow money, so they lied and lied and lied when setting Libor. Pretty much everybody was doing it, but according to the studies Gandel cites, including one by the Wall Street Journal back in 2008, Citigroup was often the biggest liar of all.

In each study, the banks' Libor submissions were compared to other measures of their borrowing costs. The bigger the gap, the bigger the lie. Citi was one of the weakest banks around at the time of the crisis, so it makes sense that it had to bend the truth about its borrowing costs more in order not to stand out from the pack of other banks setting Libor.

This doesn't necessarily mean that Citi will end up paying more than Barclays or other banks in fines or legal settlements, the high-end estimate of which has recently risen to about $35 billion. As Gandel points out, regulators may come down harder on banks that monkeyed with Libor purely for profit, as Barclays did.

Nobody has produced any evidence yet that Citi was doing that with Libor -- though Citi did get in hot water with Japanese regulators last year for allegedly manipulating Tibor, the Japanese version of Libor, purely to make money on derivatives.

Banks like Citi that were just doing what they had to do to get by during the crisis may be treated more kindly. Certainly the New York Fed and other regulators didn't lift a finger to stop Libor manipulation at the time. And the low rates helped borrowers, so almost everybody won!

Almost everybody, except for cities and states and school districts and other municipalities that had interest-rate swaps with banks. They suffered when rates were held artificially low, meaning Citi and others could still be slapped with lawsuits over even supposedly victimless rate fraud.

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  • BARCLAYS

    The UK bank has been at the centre of a very public storm since U.S. and British authorities fined it more than $450 million last month for its part in manipulating Libor. The ensuing backlash cost chief executive Bob Diamond and chairman Marcus Agius their jobs. The pair have appeared before a parliamentary committee to testify about what went on at the bank, in a scandal which has drawn in British central bankers and government ministers.

  • BANK OF AMERICA

    Bank of America is among the banks being investigated, a person familiar with the matter told Reuters last year. The bank did not comment in its 2011 annual report. It is one of 11 banks accused of conspiring to manipulate Libor in two lawsuits filed by discount brokerage and money manager Charles Schwab.

  • BTMU

    The Swiss Competition Commission said in February that Bank of Tokyo-Mitsubishi UFJ was among those it was investigating on suspicion of conspiring to manipulate rates. The Japanese bank did not comment on any probes in its 2011 annual report. This month, the group suspended two London-based traders as a result of a probe into manipulating interbank lending rates, but the bank said that was not to do with their conduct at BTMU. They had previously worked at Dutch lender Rabobank.

  • CITI

    Citigroup said its subsidiaries had received requests for information and documents as part of investigations in various jurisdictions. The U.S. bank said it was cooperating. The bank is also subject to a number of private lawsuits filed in the U.S. against banks that served on the Libor panel. In December, Japan's financial regulator said it would penalise the Japan securities units of Citigroup and UBS after finding that an individual who worked at UBS and then moved to Citi had, along with his boss at Citi, attempted to influence the Tokyo interbank offered rate (Tibor).

  • CREDIT SUISSE

    Credit Suisse is one of 12 banks being investigated by the Swiss Competition Commission about alleged collusive behaviour among traders to influence the bid ask spread for derivatives tied to Libor and Tibor as well as the rates themselves. Credit Suisse said it was cooperating fully.

  • DEUTSCHE BANK

    The German bank said it was cooperating with investigations in the United States and Europe in connection with setting rates between 2005 and 2011. It has had civil actions filed against it in the United States related to the setting of Libor. Germany's market regulator has launched a probe into the bank over suspected manipulation of interbank lending rates, sources have said. Results are expected in mid-July. German magazine Der Spiegel reported, citing no sources, that two Deutsche Bank employees have been suspended after external auditors examined whether staff were involved in manipulating rates.

  • LLOYDS

    Lloyds said it was cooperating with investigations. It has also been named in private lawsuits in the U.S. related to the setting of Libor. It said it 2011 annual report that it could not predict the ultimate outcome of investigations or lawsuits. In May, the bank said two derivatives traders had been suspended following an investigation into possible interest rate manipulation.

  • HSBC

    HSBC has said it received demands from regulators for information in connection with Libor investigations and it was cooperating. It has also been named in lawsuits related to Libor in the United States. HSBC said in its 2011 annual report that it could not predict the outcome of the investigations and lawsuits.

  • HBOS

    The bank, now a subsidiary of Lloyds, said it was cooperating with investigations. It has also been named in private U.S. lawsuits related to the setting of Libor. HBOS said it in its 2011 annual report it was not possible to predict the scope, outcome or impact of the investigations and lawsuits.

  • JPMORGAN

    JPMorgan said it was cooperating with regulators and government bodies investigating the setting of Libor, Euribor and Tibor rates, mainly in 2007 and 2008. It has also been named as a defendant in private U.S. lawsuits over Libor.

  • RABOBANK

    Rabobank said it was cooperating with investigations into possible manipulation of Libor rates. It has also been named as a defendant in a number of civil lawsuits in the United States. Rabobank said it was confident the claims would be held unfounded and was conducting its defence as such.

  • RBC

    Canada's largest bank did not make any comment in its 2011 annual report on its involvement in regulatory probes into possible manipulation of interbank lending rates.

  • RBS

    Royal Bank of Scotland said it was cooperating with investigators, who had requested information. RBS said members of its group had been named as defendants in a number of lawsuits in the United States. The bank said it had substantial defences to these claims. Following a newspaper report last month that it faced a 150 million pound fine, RBS said there could not be any certainty as to the timing or amount of any fine or settlement.

  • UBS

    The Swiss bank said it had been granted leniency or immunity from potential violations by some authorities, including the U.S. Justice Department and Swiss Competition Commission, in return for its cooperation in the Libor manipulation probe. It did not specify what information it was providing. In December, Japan's financial regulator said it would penalise the Japan securities units of Citigroup and UBS after finding that an individual who worked at UBS and then moved to Citi had attempted to influence Tibor. It has also been the subject of U.S. lawsuits.

  • WEST LB

    The German bank was among those being investigated, a person familiar with the matter told Reuters in March last year. The bank made no mention of the probes in its 2011 annual report. In July last year it was dropped, at its request, from the panel of banks contributing to daily fixings of Libor for U.S. dollars.

  • NORINCHUCKIN

    The Japanese bank did not mention the investigations into possible Libor manipulation in its 2011 annual report. In April last year it was one of 12 banks sued by Vienna-based asset manager FTC Capital, accused of conspiring to manipulate Libor.

 
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