Banks Said to Be Quizzed by European Union Over Libor Rates
London Banks Seen Rigging Rates Losing Credibility
Gill Allen/Bloomberg
Pedestrians pass 30 South Colonnade where the London interbank offered rate, or Libor, is set daily in Canary Wharf, London.
Pedestrians pass 30 South Colonnade where the London interbank offered rate, or Libor, is set daily in Canary Wharf, London. Photographer: Gill Allen/Bloomberg
European antitrust regulators, who last week opened probes into 16 banks over credit derivatives, are also examining whether lenders manipulated the daily London interbank offered rate, according to two people familiar with the investigation.
The European Union sought information from banks last month on how rates are calculated, said the people who declined to be identified because the discussions are private.
The EU probe into Libor adds to U.K. and U.S. financial regulators’ inquiries into the possible breach of rules governing the benchmark borrowing rate. Barclays Plc (BARC), the U.K.’s third-largest bank by assets, said last week that it was cooperating with U.S. and British regulators on their Libor investigations.
“This case will be difficult to prove -- and the construction of Libor is such that it is difficult to manipulate as extreme pricing is smoothed out of the calculation,” said Simon Maughan, co-head of European equities at MF Global Ltd. in London.
Joaquin Almunia, the EU’s competition commissioner, has made financial markets one of his priorities. Last week he announced a probe into Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and 14 other investment banks over agreements in the market for credit-default swaps that may harm competition.
‘Digging Its Nose’
“It’s very good news that the commission is eventually digging its nose into these money-market behaviors,” Guillaume Prache, managing director of EuroInvestors, a Brussels-based association of national shareholder groups, said in a phone interview yesterday. Libor is “very important for investors.”
Amelia Torres, a spokeswoman for Almunia, declined to comment on the Libor probe.
UBS AG (UBSN), Switzerland’s biggest bank, said in March it received demands for information from U.S. and Japanese authorities investigating possible attempts to manipulate the setting of Libor.
Libor rates, a benchmark for more than $350 trillion of financial products worldwide, are based on data from banks reflecting how much it would cost them to borrow from each other for various periods of time in currencies including dollars, euros and yen. The rates are compiled daily by Thomson Reuters Corp. for the British Bankers’ Association, BBA Chief Executive Officer Angela Knight said today in an interview.
Calculation
Yvonne Diaz, a spokeswoman for Thomson Reuters in London, said the company “calculates and publishes” the Libor rate on behalf of the BBA.
The Bank for International Settlements questioned in 2008 whether Libor rates may have been manipulated during the credit crisis. Stripping out the highest and lowest rates quoted by participating banks may have “minimized their impact,” the BIS said in a report at the time.
“In a time of high stress it is likely that Libor quotes would diverge from normal or predictable patterns,” said Maughan. “I am not sure what investors gain by regulators raking over old coals.”
JPMorgan, Deutsche Bank AG (DBK), Royal Bank of Scotland Group Plc (RBS), Commerzbank AG (CBK), Lloyds Banking Group Plc (LLOY), Credit Suisse Group AG (CSGN), UBS, Credit Agricole SA (ACA) and WestLB AG declined to comment on the EU probe.
The FTSE 350 Banks Index advanced 0.6 percent to 4755.30 at 2:35 p.m. in London.
‘Regulatory Matters’
Giles Croot, a spokesman for Barclays in London, also declined to comment today. Rabobank Groep spokesman Kees Nanninga said the Utrecht, Netherlands-based bank does “not comment on specific regulatory matters.”
HSBC Holdings Plc (HSBA)’s press office didn’t immediately respond to a call seeking comment today. Societe Generale (GLE) SA and BNP Paribas (BNP) SA said they couldn’t immediately comment.
Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America Corp., declined to comment.
If the EU finds that the banks are in breach of antitrust rules “then the maximum fine is 10 percent of global revenue and multi-million euro fines are not impossible,” said Stephen Smith, a competition partner at law firm Reynolds Porter Chamberlain LLP.
To contact the reporter on this story: Aoife White in Brussels at awhite62@bloomberg.net.
To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.
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