Libor Probe, SIPC Suit, Bank Resolution Plans: Compliance

Barclays Plc saved itself 25.5 million pounds ($40 million) in fines by moving first to settle a probe over the rigging of global interest rates. In return, it has lost three top executives, $5 billion of market value and sparked a government inquiry.

Barclays, the U.K’s second-largest lender by assets, is one of at least 12 banks including Citigroup Inc. and HSBC Holdings Plc under investigation for manipulating the London interbank offered rate. The decision to cooperate with regulators before its competitors in exchange for more lenient treatment has backfired, analysts and investors say.

Chief Executive Officer Robert Diamond, under pressure from policy makers and investors, resigned July 3 after the bank was fined a record 290 million pounds last week for rigging Libor as well as Euribor, its equivalent in euros, starting as early as 2005. Diamond, 60, faced questions from lawmakers at a Treasury Select Committee hearing July 3 on how the bank failed to prevent the abuse of a benchmark used to set interest payments on $500 trillion of securities from mortgages to swaps.

Libor and Euribor are calculated by a survey of banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies. Because submissions aren’t based on real trades, the potential exists for the benchmark to be manipulated by traders hoping to profit on where the rate is set. Barclays’s executives also were downplaying their borrowing costs by making low submissions to avoid the perception they were in trouble, according to regulators.

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Separately, the penalty imposed by regulators on a bank involved in the daily setting of the London interbank offered rate may foreshadow changes that might trigger a rate increase, according to Credit Suisse Group AG.

Barclays Plc was fined a record 290 million pounds ($451.4 million) last week after admitting it submitted false London and euro interbank offered rates. Robert Diamond resigned July 3 as chief executive officer, succumbing to political pressure to go after the bank admitted to rigging global interest rates.

The process guiding submissions for the daily Libor rate, the benchmark rate for $360 trillion of securities, is likely to be altered given the regulatory issues and legal challenges associated with the setting, Credit Suisse strategists say.

The Commodity Futures Trading Commission, among the regulators that levied the fine against Barclays, has laid out a hierarchy of transactions or instruments that panel member banks should consider when deciding on what rate to submit in the daily Libor fixing.

A possible change in the daily fixing process could include the British Banking Association increasing the number of banks in the survey, Credit Suisse wrote in a separate report published on June 28.

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Separately, Barclays’s settlement with regulators offered the first glimpse of what banks may have to pay to resolve a global probe of interest-rate manipulation. The question now is who’s next.

The two-year investigation, which involves regulators on three continents, has touched as many as 18 financial institutions that help set London and Tokyo interbank offered rates for dollars, euros and yen. That number includes as many as 12 firms that have fired or suspended traders in connection with related internal probes of whether their employees tried to manipulate the rates known as Libor and Tibor.

The span of the investigation has prompted at least one regulator to ask for more time, according to a person with knowledge of the matter. The U.S. Commodity Futures Trading Commission recently sent out so-called tolling agreements in which the banks would waive their right to claim a lawsuit should be thrown out if a five-year statute of limitations has elapsed, said the person, who asked not to be identified because the agreements aren’t public.

CFTC spokesman Steven Adamske declined to comment.

Regulators including the U.K. Financial Services Authority and U.S. Justice Department have signaled more claims are on the way. Along with the regulatory scrutiny, many of the banks face private lawsuits related to the alleged conduct.

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Diamond’s Own Words on Quitting Barclays, Libor Rigging

Robert Diamond, who quit July 3 as chief executive officer of Barclays Plc, spoke before the U.K. Treasury Select Committee in the House of Commons in London about the lender’s involvement in rigging interest rates. He sought to blame other banks for misleading markets about their ability to borrow and regulators for turning a blind eye.

Ordered to testify to British lawmakers after Barclays agreed to pay a record 290-million-pound ($455 million) fine for rigging the London interbank offered rate, Diamond said yesterday he was “disappointed” regulators failed to act on repeated warnings from Barclays that competitors had lowballed their submissions. Legislators challenged him on why he took so long to uncover his own firm’s attempts to manipulate the rate.

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For part two of the video, click here.

Osborne, Lecocq, Bove, Magnus Own Words on Robert Diamond

U.K. Chancellor of the Exchequer George Osborne, Deutsche Bank Private Wealth Management Chief Investment Officer Kevin Lecocq, Rochdale Securities analyst Richard Bove and UBS AG senior economic adviser George Magnus discussed Robert Diamond’s resignation as Chief Executive Officer of Barclays Plc.

Axa Framlington Investment Management senior fund manager Mark Hargraves, SVM Asset Management CEO Colin McLean, Cenkos Securities Plc banking analyst Sandy Chen and former U.K. Financial Services Authority Chairman Howard Davies also spoke.

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Hoban Says Bank Leadership Not a Matter for Government

U.K. Treasury Minister Mark Hoban discussed Robert Diamond’s move to step down as chief executive officer of Barclays Plc and possible criminal sanctions against those who breach further regulations on the Libor rate.

He spoke with Guy Johnson on Bloomberg Television’s “City Central.”

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Chen Says Barclays Should Replace Diamond With Outsider

Sandy Chen, a banking analyst at Cenkos Securities Plc, talked about the process of replacing Robert Diamond, who stepped down as Barclays Plc’s chief executive officer July 3.

He spoke with Maryam Nemazee on Bloomberg Television’s “The Pulse.”

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Compliance Policy

Global Anti-Counterfeiting Treaty Voted Down by EU Parliament

European Union lawmakers rejected a global anti-piracy treaty, stalling the bloc’s approval for the accord aimed at preventing counterfeiting worldwide.

The European Parliament voted 478-39 with 165 abstentions yesterday to reject the treaty, the parliament’s press service said.

The agreement, known as ACTA, is intended to set global rules for cracking down on the pirating of copyrighted materials, including illegal file sharing on the Internet. Protesters in European countries including Germany have complained that the treaty may harm freedom of expression and information sharing online.

Some 2.8 million people signed a petition asking the parliament to vote against the treaty, the parliament’s press service said, describing a campaign of “unprecedented direct lobbying.”

The European Commission, the bloc’s executive arm, tried to soothe concerns that the accord may alter EU law on punishing copyright infringements by asking the EU courts to rule on whether it violates fundamental rights, including freedom of speech.

In addition to the EU, signatories include the U.S., Japan and South Korea. The accord must be ratified by all 27 EU governments before it can come into effect.

Compliance Action

Japan’s DPJ Urges Insider-Trading Probe of 20 Offerings

Japan’s ruling party urged regulators to pursue a wider investigation of insider trading after finding spikes in transaction volumes of 20 stocks before public offerings.

The Democratic Party of Japan asked the Tokyo Stock Exchange to provide a list of the 10 investors who sold the most shares the day before the companies announced issuances between July 2009 and July 2011, said Tsutomu Okubo, head of a party panel studying the issue.

Lawmakers are examining whether insider trading before stock sales is more widespread than the cases involving four offerings uncovered by regulators since March. The crackdown has centered on short-selling based on tips provided by underwriters including Nomura Holdings Inc., which last week suspended some businesses and cut top executives’ pay over the scandal.

The lawmakers distributed a document compiled by the exchange showing the transaction volume for companies including All Nippon Airways Co., which announced a share sale in July 2009, and Resona Holdings Inc., which unveiled an offering in January 2011. The list also includes Senshu Ikeda Holdings Inc., Nippon Yusen KK, Shinsei Bank Ltd. and Hitachi Ltd.

Nomura last month acknowledged its employees leaked information before issuances by Inpex Corp., Mizuho Financial Group Inc. and Tokyo Electric Power Co. in 2010.

Financial Services Minister Tadahiro Matsushita this week called on 12 local brokerages to review how they handle confidential data. The Tokyo Stock Exchange plans to inspect about 30 Japanese and foreign brokerages to determine how they guard information, a senior bourse official said last month.

Nomura last week pledged to improve how it handles private information after completing an internal probe headed by a team of outside lawyers.

Big Banks’ ‘Living Wills’ Promise Bankruptcy Instead of Bailouts

U.S. regulators, seeking to prevent a repeat of taxpayer-funded bailouts of the financial system, released summaries of plans for breaking up nine of the world’s largest banks in the event of an emergency.

The Federal Deposit Insurance Corp. posted the public portions of so-called living wills on its website July 3 as required by the 2010 Dodd-Frank Act. The documents outline more detailed proposals submitted privately to regulators describing how the companies can be dismantled if they fail.

The banks required to file are JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley, Barclays Plc, Deutsche Bank AG, Credit Suisse Group AG and UBS AG.

The aim of the living wills is to give regulators a plan for shutting down complex financial firms without taxpayer bailouts or the turmoil that followed the 2008 collapse of Lehman Brothers Holdings Inc.

Banks with more than $250 billion in nonbank assets were the first of an eventual 125 firms required to produce liquidation plans.

Spain Court to Probe Bankia on Events Leading to Bank Rescue

A Spanish judge will investigate the Bankia group and its former Chairman Rodrigo Rato after the lender needed a record government bailout.

Fernando Andreu, a judge at the National Court in Madrid, agreed to investigate a complaint made by Union, Progreso y Democracia, a left-wing party, over allegations including deception, false accounting and fraudulent administration, according to a ruling distributed by the court today. The judge will probe Bankia, its parent and 33 board members including the 63-year-old Rato.

The judge will look into the initial public offering of Bankia SA in July of last year, the restatement of its earnings that turned up 2.79 billion euros ($3.5 billion) of losses, and Spain’s takeover and rescue of the Bankia group with 23.5 billion euros of state support. Spain nationalized the parent company last week after experts appointed by the country’s bank rescue fund said it had a negative value of 13.6 billion euros.

A Bankia official declined to comment when reached by phone. A call to Caja Madrid, where Rato is chairman, went unanswered. The decision made public yesterday can still be appealed, the judge said in his ruling.

The Bankia group was formed in 2010 from the merger of seven savings banks, including Caja Madrid and Bancaja. The shares of Bankia SA have lost three-quarters of their value since the IPO.

ASIC Says It’s Examining Proposed Offer for David Jones

The Australian Securities & Investments Commission says it has been “monitoring developments closely” since an offer for David Jones Ltd. was made public on June 29 and its withdrawal on July 2, according to statement on regulator’s website.

David Jones is an Australian department-store retailer and credit-card operator.

Consistent with its usual practice, ASIC is looking at potential issues regarding disclosure and trading in David Jones stock both by domestic and international parties.

ASIC said its priority is to ensure market integrity is maintained and markets are fair, orderly and transparent. It will also take care that in the event there has been a breach of the law, those responsible are held to account, according to the statement on its website.


Banks Ask New York Judge to Throw Out Libor Antitrust Lawsuits

More than a dozen banks including Citigroup Inc. and Bank of America Corp. asked a U.S. judge to dismiss a group of lawsuits in which they are accused of trying to manipulate the London interbank offered rate.

Plaintiffs including the City of Baltimore and New Britain Firefighters’ Benefit Fund sued the banks in 2011, contending they “suppressed” the Libor.

Lawyers for UBS AG wrote in court papers filed June 30 in U.S. District Court in New York that the allegations don’t support the legal claim.

In an amended consolidated complaint filed this year, plaintiffs claim an analysis by outside consultants found Libor was suppressed from 2007 to 2008, allowing the banks to mask their level of risk during a period of financial crisis.

The consolidated case is In re Libor-Based Financial Instruments Antitrust Litigation, 11-MD-2262, Southern District of New York (Manhattan).

For more, see Libor Probe special section, above.

SEC Loses Bid to Force SIPC Coverage for Stanford Investors

The Securities Investor Protection Corp. isn’t required to begin a claims process in Texas for the victims of R. Allen Stanford’s $7 billion investment fraud, a federal judge ruled.

U.S. District Judge Robert Wilkins in Washington July 3 said that regulators failed to show that the 7,000 brokerage clients who invested in the Ponzi scheme are entitled to have their losses covered by SIPC, a nonprofit corporation funded by the brokerage industry.

Wilkins, while expressing sympathy for the victims, declined to order the relief.

The Securities and Exchange Commission told SIPC on June 15, 2001, to start a process that could grant as much as $500,000 for each Stanford client -- the same maximum amount it offers in any case. After SIPC balked, the SEC for the first time sued the congressionally chartered group.

SIPC argued in court there’s no basis to require it to guarantee investments with an entity that isn’t a member, such as Antigua-based Stanford International Bank Ltd.

A federal jury in Houston convicted Stanford on March 8 on 13 of 14 charges brought in connection with the Ponzi scheme. He was sentenced on June 14 to 110 years in prison.

John Nester, an SEC spokesman, didn’t immediately respond to a telephone message seeking comment on the ruling.

The case is Securities and Exchange Commission v. Securities Investor Protection Corp., 11-mc-00678, U.S. District Court, District of Columbia (Washington).

Comings and Goings

Wal-Mart’s Castro-Wright Retires Amid Mexico Bribery Probe

Wal-Mart Stores Inc. Vice Chairman Eduardo Castro-Wright, a key figure in a bribery probe at the company’s Mexico operations, retired on July 1.

The Justice Department and U.S. Securities and Exchange Commission are probing allegations the Bentonville, Arkansas-based retailer approved as much as $24 million in bribes as recently as 2005, when Castro-Wright ran the Mexico business. Castro-Wright retired on schedule, David Tovar, a Wal-Mart spokesman, said in an e-mail.

His departure marks the end of an 11-year career at the world’s largest retailer. Besides presiding over rapid growth in Mexico, Castro-Wright also started Project Impact in the U.S., a failed plan to focus on fast-selling products while thinning the assortment Wal-Mart was long known for.

Castro-Wright, 57, led Wal-Mart de Mexico SA from August 2001 until February 2005.

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