Brevan Howard Asset Management LLP, a $33 billion hedge fund, asked Royal Bank of Scotland Plc to change the London interbank offered rate five years ago, according to a trader suing the lender for wrongful dismissal.
“Brevan Howard telephoned on 20 Aug. 2007 to ask the defendant to change the Libor rate,” Tan Chi Min, a trader fired by the bank for allegedly trying to manipulate the rate, said in court papers filed March 23 with the Singapore High Court. The bank “received this request without objection,” according to the document. The hedge fund isn’t a party in the suit and isn’t being sued for wrongdoing.
Scott Nygaard, listed as head of short-term markets finance on an RBS website, knew about the call from Brevan Howard, Tan said in his filing. No further facts or particulars supporting Tan’s allegation were given in the court papers.
Regulators around the globe are probing whether banks colluded to manipulate rates including Libor, the basis for $360 trillion of securities worldwide. RBS has “substantial and credible” defenses to claims it tried to rig interest rates, the Edinburgh-based bank said in its annual report March 9.
Suresh Nair, an attorney at Straits Law Practice LLC in Singapore who represents Tan, declined to elaborate further on the fired trader’s claims about Brevan Howard. Nygaard, who remains an RBS employee, declined to comment. Patricia Choo, a Singapore-based RBS spokeswoman, as well as officials at London-based Brevan Howard declined to comment on the case.
Libor is derived from a survey of banks conducted each day on behalf of the British Bankers’ Association in London. RBS and other lenders are asked how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies including dollars, euros, yen and Swiss francs. After a predetermined number of quotes are excluded, those remaining are averaged and published for each currency by the BBA before noon.
Three-month dollar Libor rose to a six-and-a-half-year high of 5.73 percent on Sept. 7, 2007 as concern that losses on securities linked to U.S. subprime mortgages would escalate prompted lenders to hoard cash. The three-month dollar Libor is currently at 0.47 percent, according to data from the BBA.
Because outlier rates are discarded, it would be difficult for a single bank to manipulate Libor to benefit its trading positions or those of clients, said Christopher Rieger, head of interest-rate strategy at Commerzbank AG in Frankfurt.
“If only one bank was involved, then it would be very difficult to manipulate the Libor in a meaningful way,” Rieger said in a telephone interview.
Tan, RBS’s former Singapore-based head of short-term interest rate trading for the Japanese yen, sued the lender for wrongful dismissal in December. He’s seeking $1.5 million in bonuses and 3.3 million RBS shares that he says he’s owed.
In his suit, Tan said it was “common practice” among the bank’s senior employees to make requests on Libor to its rate setters. This was known to RBS’s senior management including Nygaard, according to the court filing.
RBS responded in January, saying in court filings that it terminated Tan because he tried to improperly influence the bank’s rate setters from 2007 to 2011 to persuade them to offer Libor submissions that would benefit his trading positions.
Tan first claimed that RBS employees “took requests from clients such as” Brevan Howard “in relation to the fixing of Libor,” in his complaint dated Dec. 27. The hedge fund was the only company identified as a client of RBS in the lawsuit.
RBS responded to Tan’s complaint on Jan. 18, rejecting his claim it took such requests from clients and asked for “strict proof” of the allegation.
Tan said further information on allegations that rate requests made by clients to the bank’s employees would be given as evidence and RBS wasn’t entitled to them at this stage, according to his March 23 filing.
Regulators including the U.K.’s Financial Services Authority, the U.S. Justice Department and the U.S. Securities and Exchange Commission are probing whether banks lowballed their Libor submissions to hide difficulties they faced in borrowing money. Investigators are also focusing on whether traders urged rate setters to offer submissions that would benefit their interest-rate derivative positions.
Brevan Howard was founded in 2002 by Alan Howard with four other traders from Credit Suisse Group AG’s proprietary fixed-income trading desk. The firm’s biggest pool, the $26.6 billion Master Fund, returned 12 percent last year after it made a bullish bet on U.S. Treasuries and U.K. gilts. The Master Fund has never posted a negative calendar year return since its inception in April 2003.
The case is Tan Chi Min v The Royal Bank of Scotland Plc S939/2011 in the Singapore High Court.