x Abu Dhabi, UAE Thursday 20 July 2017

Seven top banks face US probe over Libor rate-fixing scandal

Seven of the world's biggest banks have received court orders from regulators in the United States investigating what role they may have played in the Libor rate-fixing scandal.

US regulators have accused Barclays of colluding with other banks' trading desks to rig Libor rates to generate higher profits on trades of selected financial instruments. Brendan McDermid / Reuters
US regulators have accused Barclays of colluding with other banks' trading desks to rig Libor rates to generate higher profits on trades of selected financial instruments. Brendan McDermid / Reuters

Seven of the world's biggest banks have received court orders from regulators in the United States investigating what role they may have played in the Libor rate-fixing scandal.

The seven lenders are HSBC, Citigroup, JPMorgan Chase, UBS, Royal Bank of Scotland, Deutsche Bank and Barclays Bank.

Libor, or the London interbank offered rate, is used as a benchmark for trillions of dollars of financial products, from the prosaic mortgage loan to syndicated debt, corporate bonds and complex derivatives. And although Libor is based in London, the rate is referenced by financial products throughout the world.

Bloomberg News reported yesterday the attorneys-general of New York and Connecticut are jointly investigating the alleged manipulation of London rates, following investigations by British and US regulators this summer. The seven banks declined to comment on the latest revelation.

While the move is a small step forward in what is likely to be a long process of evidence-gathering, it nevertheless raises the potential of future fines, said Ian Gordon, the head of banks research at Investec Securities.

"For me, all this does is convince me further that the market was wrong to obsess over Barclays when they announced their settlement at the end of June," he said.

Barclays paid a total of US$453 million (Dh1.66 billion) in fines that month to settle an investigation by US and UK regulators, sparking a scandal that forced the resignation of Bob Diamond, the bank's chief executive and two other top executives. Regulators accused Barclays of colluding with other banks' trading desks to rig Libor rates to generate higher profits on trades of selected financial instruments.

The bank also lowered its Libor submissions to deflect the impression that it was facing funding difficulties at a later stage in the financial crisis, it is claimed.

Barclays said out of 2,000 traders, 14 were at fault and criminal proceedings were now taking place against them.

In the meantime, interbank lending rate panels in Hong Kong, the United Kingdom, Japan, Denmark and Singapore have been reshuffled as banks reassess their role.

Three of the banks issued with subpoenas also play a role in setting benchmark lending rates in the Middle East. Barclays has already asked to withdraw from the UAE's Central Bank panel, which sets the Emirates interbank offered rate, or Eibor, and is due to step down in October.

HSBC and Citigroup both sit on the Eibor panel, while Saudi British Bank, 40 per cent owned by HSBC, is also a member of the Saudi interbank offered rate selecting panel, or Saibor.

The impact of Eibor on the prices of financial products in the UAE is difficult to gauge, said Shabbir Malik, a financial analyst at EFG Hermes.

"Some banks use their own internal rates when they priced in loans and don't use Eibor as a benchmark," he added.

ghunter@thenational.ae

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