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<3<3<3 libor <3<3<3

Barclays Traders Caught Manipulating Interest Rate Submissions, E-mailing Like Teenage Girls

OMGee, did you SEE Jessica's dress the other night?

Barclays, the British bank that swooped in to save Lehman Brothers during its hour of need, has now gotten into a bit of trouble on its own.

The bank agreed to pay roughly $450 million today to settle a case with the Justice Department, the CFTC, and the UK's Financial Services Authority over its role in manipulating the Libor and Euribor — two interest rates that are set daily according to submissions from a number of big banks. Barclays CEO Bob Diamond and other bank executives have volunteered to forgo their bonuses this year as a result of the settlement, and the bank issued a statement in which Diamond apologized for the actions of his traders.

"I am sorry that some people acted in a manner not consistent with our culture and values," he said.

Here's basically what happened: Every day, Barclays and fifteen other banks tell the British Bankers' Association how much it costs them to borrow from other banks. This survey forms the basis of the London Interbank Offered Rate, or Libor, which is used to set prices and short-term interest rates for all kinds of financial products. (The Euribor is the same thing, but for the EU.) You can read more about Libor here, and read the CFTC's, DOJ's and FSA's summaries of the settlement here, here, and here.

Barclays was accused of lying on its Libor and Euribor submissions during the financial crisis, in order to avoid sending up red flags about Barclay's financial health, and to make certain trades tied to the Libor rate more profitable.

What you really need to know is that, like many big investigations of Wall Street firms, the Barclays probe unearthed a treasure trove of incriminating trading floor e-mails.

There were praises sung:

On Monday, 13 March 2006, the following email exchange took place:

Trader C:  “The big day [has] arrived… My NYK are screaming at me about an unchanged 3m libor.  As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?” 

Submitter:  “I am going 90 altho 91 is what I should be posting”.

Trader C:  “[…] when I retire and write a book about this business your name will be written in golden letters […]”.

Submitter:  “I would prefer this [to] not be in any book!”

Spellings mangled:

On Friday, October 13, 2006, a Barclays Euro swaps trader (“Trader-5”) sent an electronic communication to Submitter-3 stating in part, “I have a huge fixing on monday ... something like 30bn 1m fixing ... and i would like it to be very very very high ... can you do something to help? i know a big clearer will be ag[a]inst us ... and dont [sic] want to loose money [sic] on that one.

Celebrations planned:

On October 26, 2006, at approximately 7:12 a.m., Trader-1 communicated by electronic messages with Trader-6, stating, “where do u think 3m libor will be today?” Trader-6 replied, “[Submitter-1] thinks 38.” Trader-1 responded in part: “wow ... unchanged!!!?!??! Short dates have rallied by 0.75bp ... So I take it he’s going unchanged? If it comes in unchanged I’m a dead man ha ha.” (ellipses in original). Trader-6 replied, “i’ll [sic] have a chat.” Later that day, Trader-1 wrote: “Dude I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger! Thanks for the libor.” Trader-6 replied, “know [sic] worries!!!”

Favors doled out:

As another example, on March 29, 2007, at approximately 6:22 a.m., Trader-1 communicated by electronic messages with Trader-6, stating in part, “I know I’m asking for much, but ONLY if u guys care, a low 3m libor would be great ... anywhere below 5.35 ... thanks dude.” (ellipses in original). Later that day, Trader-1 wrote to Trader-6, “Dude, thanks a lot for the libor, can you PLEASE thank [Submitter-1] as well :-).” Trader-6 replied, “anything for you!!!” Trader-1 responded, “seriously, thanks a million dude.”

Terms of endearment used:

Trader C requested low one month and three month US dollar LIBOR submissions at 10:52 am on 7 April 2006 (shortly before the submissions were due to be made); “If it’s not too late low 1m and 3m would be nice, but please feel free to say “no” ... Coffees will be coming your way either way, just to say thank you for your help in the past few weeks”.  A Submitter responded “Done … for you big boy”

And secrets shared:

Trader E commented to the external trader at Panel Bank 6 “this is the way you pull off deals like this chicken, don’t talk about it too much, 2 months of preparation […] the trick is you must not do this  alone […] this is between you and me but really don’t tell ANYBODY”.

Someday, after enough lawsuits, investigations, and congressional hearings, Wall Street traders may learn not to collude and scheme over e-mail and other easily tracked modes of communication.

But for the sake of people who enjoy emoticons and rudimentary English mistakes, we hope that day comes later rather than sooner.

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Photo: Chris Hondros/Getty