LITTLE ROCK — Royal Bank of Scotland Group PLC managers condoned and participated in the manipulation of global interest rates, sources say, an indication that wrongdoing extended beyond the four traders the bank has fired.
In an instant-message conversation in late 2007, Jezri Mohideen, then the bank’s head of yen products in Singapore, instructed colleagues in the United Kingdom to lower Royal Bank of Scotland’s submission to the London interbank offered rate that day, according to two people with knowledge of the discussion. No reason was given in the message as to why he wanted a lower figure. The rate setter agreed, submitting the number Mohideen sought, the people said.
Mohideen wasn’t alone. The bank’s 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 News. Traders 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 LLP in London. “A lot of the traders didn’t consider this behavior to be wrong. They took it as the practice of the trade.”
Royal Bank of Scotland is one of at least a dozen banks being investigated by regulators worldwide over allegations that traders colluded to manipulate the benchmark interest rate so they could profit from bets on interest-rate derivatives. The Edinburghbased lender took about $74 billion from taxpayers in the largest bank bailout in history and is 81 percent owned by the British government.
Barclays PLC, Britain’s second-biggest bank, was fined $470 million in June for rigging the rate, used for more than $300 trillion of securities ranging from mortgages to student loans. Chief Executive Officer Robert Diamond and Chairman Marcus Agius resigned in the aftermath.
Regulators are now investigating Royal Bank of Scotland’s yen, Swiss franc and U.S. dollar sales and trading businesses, all part of the fixed-income division, said two people who asked not to be identified. Investigators are focusing on the firm’s swaps, inflation-trading and foreignexchange teams, as well as on money-market traders whomade daily Libor submissions, the people 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, the people said. These communications - by e-mail, instant messages and telephone - are the focus of the investigations.
The bank’s seating arrangements helped facilitate these interactions. Money-market traders who made the firm’s daily Libor submissions sat on the same desk as derivatives traders whose profits rose and fell depending on where Libor was set, three people said. When the rate setters were away, derivatives traders were asked by managers to make the submissions themselves, the people said.
The U.K.’s Financial Services Authority imposes no restrictions on banks to prevent communications about Libor between traders and rate setters, beyond a broad requirement for them to identify and prevent conflicts of interest, according to guidelines posted on the agency’s website.
Royal Bank of Scotland fired four employees last year for allegedly rigging Libor rates. So far no senior managers have been suspended or fired, according to a person with knowledge of the matter.
As part of the inquiry, inhouse investigators have to draw the distinction between undue influence and reasonable sharing of information within the firm, two people said.
Mohideen, who joined Royal Bank of Scotland in 2006, denies he pressured anyone to submit false rates.
“That didn’t ever happen,” he said by telephone.
He referred all further questions to Royal Bank of Scotland spokesmen. The bank said in a statement that its internal inquiry into rate rigging is continuing and that it’s cooperating with regulators.
The Libor is calculated by a poll carried out daily on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.
Information for this article was contributed by Gavin Finch, Andrea Tan, Lindsay Fortado and Andrew Mayeda of Bloomberg News.
Business, Pages 22 on 09/26/2012