Liam Vaughan, Gavin Finch and Andrea Tan London and Singapore
ROYAL Bank of Scotland (RBS) managers condoned and participated in the manipulation of global interest rates, indicating that wrongdoing extended beyond the four traders the bank had fired, according to industry insiders.
In an instant-message conversation in late 2007, Jezri Mohideen, then the bank’s head of yen products in Singapore, instructed UK colleagues to lower RBS’s submission to the London interbank offered rate (Libor) that day, according to two people with knowledge of the discussion. No reason was given in the message on why he wanted a lower bid. The rate-setter agreed, submitting the number Mohideen sought, the people said.
Mohideen was not alone. RBS traders and their managers routinely sought to influence the firm’s Libor submissions between 2007 and 2010 to profit from derivatives bets, according to employees, regulators and lawyers interviewed by Bloomberg. Traders had also communicated with counterparts at other firms to discuss where rates should be set, one person said.
“This kind of activity was widespread in the industry,” said David Greene, a senior partner at law firm Edwin Coe in London. “A lot of the traders didn’t consider this behaviour to be wrong. They took it as the practice of the trade. This is how things operated, and it seemed harmless.”
RBS, 81 percent owned by the British government, is one of at least a dozen banks being probed by regulators worldwide over allegations that traders colluded to manipulate the benchmark interest rate so they could profit from bets on interest-rate derivatives.
Barclays, Britain’s second-biggest bank, was fined £290 million (R3.8bn) in June for rigging the rate, used for more than $300 trillion of securities ranging from mortgages to student loans. Chief executive Robert Diamond and chairman Marcus Agius resigned in the aftermath.
Regulators are now probing RBS’s yen, Swiss franc and US dollar sales and trading businesses, all part of the fixed-income division Fred Goodwin expanded before he was ousted as chief executive in 2008, said two sources.
Investigators were focusing on the firm’s swaps, inflation trading and foreign-exchange teams, as well as on money market traders who made daily Libor submissions, they said.
The rate-rigging allegations are the biggest blow to the Edinburgh-based lender since it took £45.5bn from taxpayers in the largest bank bailout in history and Stephen Hester replaced Goodwin.
The process of setting rates was open to abuse because RBS failed to establish guidelines until June 2011, four people familiar with the business said. Managers encouraged rate setters to discuss Libor with traders across the company as a way of ensuring the bank’s submissions reflected market conditions, particularly after money markets froze in 2007, they said. These communications – by e-mail, instant messages and telephone – are the focus of regulators’ probes.
RBS fired four employees last year for allegedly rigging Libor rates. So far no senior managers had been suspended or fired, an official said. – Bloomberg