Rabobank Groep, the co-operative formed in 1898 to lend to Dutch farmers, was fined 774 million euros ($1.1 billion) and the chairman resigned as the scandal over the rigging of benchmark interest rates ensnared a fifth firm.
The fines by the U.S. Commodity Futures Trading Commission, the Department of Justice, the U.K. Financial Conduct Authority and the Dutch public prosecutor’s office bring the total settlements in the rate-rigging probe to $3.7 billion.
The Utrecht, Netherlands-based lender entered into an agreement with the Justice Department to accept responsibility for manipulation of Libor and Euribor to avoid prosecution, the DOJ said. The FCA called the misconduct “serious, prolonged and widespread.”
The fines are the largest-ever against the bank and second-largest over manipulation of the London interbank offered rate. Global investigations into banks’ attempts to manipulate the benchmarks for profit have led to fines and settlements for Barclays Plc, Royal Bank of Scotland Group Plc, UBS AG and ICAP Plc.
“The size of the settlement was pretty scary given the size of Rabobank’s profits,” Christian Hamann, a banking analyst with Hamburger Sparkasse, said in an interview. “There are a lot of banks that still need to settle. The concern is that those banks that come later will have to pay more.”
Rabobank derivatives and money-market traders influenced the lender’s submissions to benefit their positions linked to Libor and conspired with employees of other banks to rig rates from May 2005 to January 2011, the London-based FCA said. More than 500 attempts were made by Rabobank to manipulate Libor, according to the regulator.
“Rabobank’s misconduct is among the most serious we have identified on Libor,” Tracey McDermott, the FCA’s head of enforcement, said in a statement. “Traders and submitters treated Libor submissions as a potential way to make money, with no regard for the integrity of the market.”
In e-mails disclosed by the FCA that didn’t identify anyone by name, a Rabobank trader asked a colleague if anyone would notice if they submitted a lower yen Libor rate.
“Don’t worry mate -- there’s bigger crooks in the market than us guys!” the submitter responded.
In another exchange, a trader told a submitter that people were talking with each other to change the rates. The submitter responded, “yes deffinite manipulation - always is tho to be honest mate... i always used to ask if anyone needed a favour and vise versa... a little unethical but always helps to have friends in mrkt.”
Thirty current and former employees of the Dutch lender were involved, Rabobank executive board member Sipko Schat said today. Five of them were fired, he said, while 14 are still working for the bank. The lender is also clawing back 4.2 million euros in bonuses, Rabobank said in a statement.
Piet Moerland, the bank’s chairman, isn’t the first top executive to resign because of Libor. Robert Diamond stepped down as chief executive officer of Barclays Plc after the London-based bank was fined 290 million pounds ($466 million) for manipulating Libor last year.
Moerland, 64, said in June he would retire next year after more than 30 years at the biggest Dutch mortgage lender. He will be temporarily replaced by Rinus Minderhoud, 67, a member of the bank’s supervisory board since 2002, the bank said in a statement.
Crude Oil, Biofuels
“The use of such large fines is a wake-up call to senior management in these financial institutions that have the power to manipulate markets,” said David Gold, a U.K. lawyer and member of the House of Lords.
Deutsche Bank AG, Europe’s largest investment bank by revenue, is among the companies still waiting to settle with regulators. The lender today said third-quarter profit fell 94 percent as it set aside 1.2 billion euros to cover potential legal costs. Rate-rigging probes may result in “significant” fines, the company said.
Regulators around the world are examining alleged abuses of financial benchmarks by companies that play a central role in setting them. European watchdogs are reviewing possible collusion in crude oil and biofuels markets, while the U.S. CFTC and Britain’s FCA are probing the potential manipulation of ISDAfix, a benchmark for interest-rate swaps. Regulators in Switzerland and the U.K. are also investigating a foreign-exchange benchmark.
“You are vulnerable in all other indexes which are set subjectively,” Schat said. “We are investigating all of these, including interest-rate indexes, not because we have indications of any issues there but to get comfort.”
Rabobank, the only one of the four largest Dutch lenders that didn’t take state aid during the financial crisis, has seen its image as one of Europe’s safest banks dented. It lost its AAA rating at Standard & Poor’s in 2011 and has been subpoenaed or asked for information in the rate-rigging probe in the European Union, Japan, Hong Kong, Singapore, Switzerland and the Netherlands.
“We were startled by the amounts, which were higher than we had anticipated, taking into account regulators found no involvement from the bank’s management board or senior managers,” Schat said. “Regulators also hold against us that our internal organization wasn’t set up adequately, with Libor policies lacking.”
Rabobank’s Tokyo branch was also penalized by the Japanese Financial Services Agency, which ordered the bank to submit a plan to improve its compliance and internal controls, the regulator said in a statement today. Today’s settlements don’t mean the investigations are over, Schat said, as several regulators haven’t completed their probes yet.
The manipulation “directly affected the rates referenced by financial products held by and on behalf of companies and investors around the world,” Valerie Parlave, Assistant Director in Charge of the FBI’s Washington field office, said in a statement. “Rabobank’s actions resulted in the deliberate harm to counterparties holding products referencing the manipulated rates.”
The bank took a provision for the settlements in the first half of the year, without disclosing the amount. First half net-income dropped 14 percent to 1.11 billion euros from a year earlier, hurt by the charge and impaired land prices, Rabobank said in August.
“The provision we took in the first half was considerable and seems to be almost sufficient to cover the settlements announced today,” Schat said. “We haven’t seen reasons to amend our full-year profit expectations.”
Second-half earnings will be bolstered by a 1.5 billion-euro book gain on the sale of its asset-management unit Robeco, and bad loan provisions are stabilizing, and possibly declining, Schat said today.
The level of today’s settlement fits in a trend of “intensifying supervision,” Schat said. “Other parties will be preparing for high fines as well.”