Rate-Rigging Claims Spur Norway Plea to Restore Bank Trust

E-mails from international bankers alleging Norway’s interbank offered rate was rigged are being taken “seriously” by the government, which is calling on banks to ensure the industry restores trust in the rate.

“These have been rumors that have been put forward and any rumors must be taken seriously,” Finance Minister Sigbjoern Johnsen said in an interview in Oslo. “It’s up to the banks, and those who organize Nibor on the banks’ side, to see to it that there is full confidence in this very important rate.”

The central bank last week released e-mails sent by bankers outside Norway claiming that Nibor was being manipulated locally. The central bank document revealed complaints from traders around the world going as far back as 2010. Nibor is used as a benchmark for about 843 billion kroner ($153 billion) in bonds, according to trustee Norsk Tillitsmann. The rate was linked to as much as 5.8 trillion kroner in derivatives in April 2010, central bank documents show.

The revelations have added urgency to a probe that started in December and that was requested by the Finance Ministry. Interbank rates have come under scrutiny worldwide after Barclays Plc was fined a record 290 million pounds ($468 million) last year for attempting to rig the London interbank offered rate and the European Interbank rate. At least 12 banks including Deutsche Bank AG are being probed for manipulation.

In Company

“This isn’t only a Norwegian work, this is done in Sweden, Denmark, England and what has happened to the Libor in London is part of the story,” Johnsen said in a Jan. 23 interview.

Deutsche Bank in 2011 fired Christian Bittar, one of the firm’s best-paid traders, claiming he colluded with a Barclays trader to manipulate rates and boost the value of his trades in 2006 and 2007, according to three the people with knowledge of the move. The people requested anonymity because they weren’t authorized to speak publicly.

Norway’s finance minister last month asked the Financial Supervisory Authority and the central bank to check whether Nibor accurately reflects unsecured loan rates between banks and whether fixings are sufficiently robust. The findings of the probe will be presented by the end of March.

‘Market Abuse’

In the correspondence released last week, a June 2010 e-mail by a banker, whose name was blacked out, said Nibor fixings “seem to bear no resemblance to market realities,” adding he suspected “fixings that resembled market abuse.”

Nibor, which is used as a benchmark for mortgage rates, corporate bond yields and derivative contracts, is calculated as an average of rates published by a panel of banks for various maturities, excluding low and high quotes, according to Finance Norway, which represents banks in the country. The panel is made up of DNB ASA, Danske Bank A/S, Svenska Handelsbanken AB, Nordea Bank Norge ASA, SEB AB and Swedbank AB.

“This is a very important rate,” Johnsen said. “There should be no question about the confidence in this rate.”

Finance Norway, which represents about 200 banks operating in the country, said it has no reason to believe there was any manipulation of Nibor.

“It would be wise to look closer into this so we can be sure that nobody has been misleading anyone in any respect,” Paal Ringholm, head of credit research at Swedbank First Securities, said in a reply to e-mailed questions on Jan. 18.

Since there are very few loans given between banks that extend beyond a few days, longer maturity Nibor rates are based on U.S. dollar rates and on the term premium for the dollar and krone, according to the central bank. The currency aspect has made Nibor more volatile, the bank said.

In Scandinavia, Denmark has also conducted a probe of the Copenhagen interbank offered rate amid speculation it was manipulated during the financial crisis, while Sweden has reviewed its equivalent rate, called Stibor.

“It is very important to come up with the best possible, forward-looking rules and regulations and this is part of an international trend,” Johnsen said.

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