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Posts Tagged ‘Barclays’

We had to reread this DOJ statement on today’s RBS wristslap twice, as the hypocrisy was literally mind-blowing: “As we have done with Barclays and UBS, we are today holding RBS accountable for a stunning abuse of trust,” said Assistant Attorney General Breuer.  “The bank has admitted to manipulating one of the cornerstone benchmark interest rates in our global financial system, and its Japanese subsidiary has agreed to plead guilty to felony wire fraud.  The department’s ongoing investigation has now yielded two guilty pleas by significant financial institutions.  These are extraordinary results, and our investigation is far from finished.  Our message is clear:  no financial institution is above the law.”

Wow.

We have two questions: i) how is it that Lanny Breuer, the man who was unmasked by the recent humiliating show “Untouchables” as the DOJ mastermind behind not bringing one single criminal case against bankers for fear of “ripple effects” when pursuing justice against TBTF banks still employed by the US government and still on the record after reportedly announcing his resignation two weeks ago? And ii) how does he, of all people, have the gall to even mention “stunning abuse of trust” when his entire public-service career can be summarized as such?

Zero Hedge

It’s been a relatively decent year for financial stocks: they’ve had their best performance since 2003. It’s truly been a boom year, though, in investigations, lawsuits, fines, and settlements at the world’s biggest and most important banks. There are 28 banks on the FSB’s list of systemically important financial institutions, and as Felix writes, “pretty much the whole financial sector is still trading at less than book value”.

What follows is a list of notable accusations, admissions and settlements in 2012 alone. (It’s long, so just scroll down if you just want the links):

Bank of America: the US Justice Department is seeking $1 billion in fines for troubled loans sold to Fannie and Freddie; MBIA’s lawsuit against Countrywide, which was disastrously acquired by BofA, rolls on; BofA is one of five banks participating in the $25 billion national mortgage settlement. (Price to book: 0.56, here and throughout via Yahoo Finance)

Bank of China: the families of Israeli students killed in a 2008 terrorist attack are suing the BOC for $1 billion “intentionally and recklessly” handling money for terrorist groups.

Bank of New York Mellon: a subsidiary paid $210 million to settle claims it advised clients to invest in Bernie Madoff’s ponzi scheme; the DOJ continues to investigate possible overcharges for currency trades that it says generated $1.5 billion in revenue. (Price to book: 0.86)

Barclays: $450 million settlement in the Libor scandal; also fined by the FSA for mis-sold interest rate hedges. (Price to book: 0.72)

BBVA: settled overdraft suit for $11.5 million. (Price to book: 0.83)

Citigroup: settled CDO lawsuit for $590 million; one of five banks participating in the $25 billionnational mortgage settlement; paid $158 million to settle charges it “defaulted the government into insuring” risky mortgages. (Price to book: 0.62)

Credit Suisse: sued by NY state for allegedly deceiving investor in the sale of MBS. (Price to book: 0.85)

Deutsche Bank: settled a DOJ mortgage suit for $202 million; FHFA fraud case is ongoing. (Price to book: 0.56)

Goldman Sachs: FHFA fraud case is ongoing; after a ruling by federal appeals court, a class action lawsuit over MBS will go forward. (Price to book: 0.91)

Crédit Agricole: sued by CDO investors two times. (Price to book: 0.35)

HSBC: settled money laundering charges for $1.9 billion; set aside $1 billion for future settlements related to mis-selling loan insurance and interest rate hedges in the UK; Libor settlement still to be reached. (Price to book: 1.17)

ING: settled charges that it violated sanctions against Iran, Cuba, etc. for $619 million. (Price to book: 0.5)

JP Morgan Chase: being sued by NY state for MBS issued by Bear Stearns; class action lawsuitand criminal probe over failed derivatives trades in its Chief Investment Office; one of five banks participating in the $25 billion national mortgage settlement. (Price to book:0.87)

Mitsubishi UFJ: paid an $8.6 million fine for violating US sanctions on Iran, Sudan, Myanmar and Cuba. (Price to book: 0.54)

Morgan Stanley: fined $5 million for improper investment banking influence over research during Facebook’s IPO. (Price to book: 0.63)

Royal Bank of Scotland: $5.37 billion shareholder lawsuit related to 2008 rights issuance; set aside $650 million to cover claims it mis-sold payment protection products; also fined by the FSA for mis-sold interest rate hedges. (Price to book: 0.28)

Santander: fined by the FSA for mis-sold interest rate hedges. (Price to book: 0.77)

Société Générale: rogue trader Jerome Kerviel loses appeal his appeal 3-year sentence for trades that generated $6.5 billion in losses. (Price to book: 0.45)

Standard Chartered: $340 million fine paid to NY state department of financial services for allegedly hiding the identity of customers in transactions with Iran and drug cartels; $327 million paid to the Federal Reserve and US Treasury’s anti-money laundering unit.

State Street: fined $5 million for lack of CDO disclosure. (Price to book: 1.09)

UBS: $1.5 billion Libor fine and two traders criminally charged; rogue trader responsible for $2.3 billion loss found guilty of false accounting. (Price to book: 1.12)

Wells Fargo: Federal lawsuit over mortgage foreclosure practices ongoing; paid $175 million over mortgage bias claims; one of five banks participating in the $25 billion national mortgage settlement. (Price to book: 1.29)

Ben Walsh – Reuters

The letter appears to be authentic…..

So long as this continues, there will be no solution to corporate fraud.

The bank simply has to pay a fine.  This is similar to what GSK recently did.

That might, at first blush, appear to be a decent deterrent.

It isn’t because the company can pass the cost on to its customers, and in some cases pass the cost onto the very people that were defrauded, effectively forcing the victims to pay twice!

There are only two effective means of punishment for corporate crimes.

• Prison.  For the individuals, including the executives, of the firm(s) involved.
• Imprisonment for the corporation.  That is, the suspension or revocation of the firm’s corporate certificate, thereby either barring it from operating as a corporation for some period of time (as with a prison sentence) or permanently (as would be the case for a “life term”.)  The latter is certainly appropriate under a “three strikes” rule.

Nothing else will do, and until we see the end of simple monetary penalties there will be no solution to the problem of corporate crime, even when the fraud involved is in the largest markets in the world.

We the people must insist that the above two punishments be served upon all corporate frauds.

There have been numerous big banking scandals recently.

But the Libor scandal is the biggest financial scam in world history.  See thisand this.

The former CEO of Barclays said today that banks across the world were fixing interest rates in the run-up to the financial crisis .

Professor of economics and law Bill Black notes:

It is the largest rigging of prices in the history of the world by many orders of magnitude.

Indeed, the scandal effects an $800 trillion dollar market - 10 times the size of the real world economy.

Matt Taibbi explains that this is the “mega scandal of all mega scandals”, because Libor is the “sun at the center of the financial universe”, and manipulating Libor means that “the whole Earth is built on quicksand.”

Local governments, credit card holders, students, small businesses, small investors, homeowners and virtually everyone else in the entire world has been impacted by the manipulation.

Credit card debt - almost a trillion dollar market – is pegged to Libor. So arestudent loans – a trillion dollar market.

Mortgages are a bigger market: around $10 trillion dollars in the U.S.  The Washington Post notes today:

60 percent of prime adjustable rate mortgages, and nearly 100 percent of subprime ones, were indexed to LIBOR.

 

***

 

That means that when LIBOR rises, so do the prices ordinary consumers pay to, say, get a mortgage.

 

***

 

So how did the manipulations by Barclay’s affect this rate? First, from 2005 and 2007, the bank allegedly varied the rates it reported to the BBA and Thomson Reuters so as to improve its margins on internal trades. For example, it could have placed bets that the LIBOR rate would increase, and then reported artificially high rates which in turn artificially increased the LIBOR averages, so that the bets were likelier to pay off. This … bumped up mortgage rates– however infinitesimally – for consumers even when the risk of the loans hadn’t changed at all.

Other loans – like small business loans – are usually based on Libor as well.

But that is all small potatoes compared to the $350 trillion in swaps tied to Libor.  Virtually every single local government in the United States has been scalped by Libor manipulation.

The big banks have robbed the whole world.

Indeed, the scandal is so big that it will further destroy trust in our financial system and drive many people from investing in the capital markets altogether.

Zero Hedge

Reprinted with permission:

“Sometimes Being Responsible Means Pissing People Off”

By Janet Tavakoli – July 3, 2012

Last week, Gillian Tett of the Financial Times wrote how five years previously, she and her fellow journalists were intimidated into backing off of a huge story about banks manipulating LIBOR. This is the London Interbank Offered Rate set by a poll of leading banks to determine the benchmark interest rate referenced by many home mortgage loans, floating rate notes, collateralized debt obligations, and many other financial instruments:

“At the time, this sparked furious criticism from the British Bankers’ Association, as well as big banks such as Barclays; the word “scaremongering” was used. But now we know that, amid the blustering from the BBA, the reality was worse than we thought. As emails released by the UK Financial Services Authority show, some Barclays traders were engaged in a constant and pervasive attempt to rig the Libor market from 2006 on, with the encouragement of more senior managers. And the British bank may not have been alone.”

(“LIBOR Affair Shows Banking’s Big Conceit,” Financial Times, June 28, 2012.)

At the heart of the allegations is what appears to be a blasé criminal conspiracy within Barclays. Moreover, Tett is correct. Barclays is far from alone.

Unfortunately, the intimidation was a success. The BBA and Barclays chose their word carefully, because accusing journalists of “scaremongering” suggests they are irresponsible sensationalist hacks. In essence, through lies and intimidation, they threatened to ruin careers.

The Financial Times backed off. As a result, the best coverage of the ongoing scandal came from a controversial blog with mostly anonymous writers called ZeroHedge. It pounded on the story harder than mainstream financial media. Not only are other banks implicated in the scandal, the Bank of England, a bank regulator, is also implicated.

The Future of Finance

In December 2009, I participated in the Wall Street Journal’s Future of Finance Initiative in England along with Alistair Darling, then Britain’s Chancellor of the Exchequer, and Robert (“Bob”) E. Diamond, Jr., then President of Barclays PLC among others. The Wall Street Journal wrote a summary of the conference highlights. Allow me to highlight some things it missed.

Alistair Darling, Chancellor of the Exchequer, spoke on the opening evening. I asked him why massive financial fraud remained unaddressed. Darling appeared momentarily confused and seemed to suggest this was exclusively a U.S. problem to be handled by the courts. I pushed back on this notion. By the time one needs a lawyer, it is too late. I noted that we, the middle aged financiers in the room, are responsible for taking action. If we don’t face this issue head on, we will never restore trust in the financial system.

That was the last time the word “fraud” was mentioned at the conference, and my question and Darling’s answer and my rebuttal were not reported.

Bob Diamond defended financial innovation saying there is a real purpose for structuring credit for pension funds. He was probably unaware that state pension funds in the United States were damaged by the unintended consequences of a “AAA” rated structured credit product. The pension funds were wise enough to avoid investing in the product, yet as I explained in my February 2007 letter to the Securities and Exchange Commission, large fixed income pension funds were unintentionally harmed by the market distortions caused by this “financial innovation.”

This conference took place just over one year after the global financial meltdown. Diamond didn’t address malfeasance much less fraud. For example, he conveniently omitted Barclays’ business relationship with Bear Stearns’s hedge funds (Barclays sued over hundreds of millions in losses and later dropped the suit.)—among other unrelated problematic issues—and he was mum about Barclays’ LIBOR manipulation.

Today, Bob Diamond, CEO of Barclays, announced his resignation in the midst of the LIBOR scandal. There is speculation that Diamond was pressured to resign by the Bank of England after Diamond’s bellicose threats to expose embarrassing details about his interactions with bank regulators.

Threats are more effective against respected journalists whose careers you are threatening to ruin than against complicit regulators that can ruin yours.

How Many Billions in Unrecognized Losses?

So how did the “Future of Finance” work out for the British attendees? It worked out much as it had in the past. Malfeasance remains unchecked, unless something like the LIBOR scandal blows up. This isn’t the only problem with the British banks. Like their U.S. and European counterparties, the balance sheets need a thorough going-over to determine the true extent of the global financial debacle. The banks are not just lying about LIBOR.

Ed: The allegation has now been made that the UK government and/or BOE, and perhaps the Fed, were involved as well.  What’s clear is that there were multiple people involved in an organized attempt to rig this market — the largest interest-rate market in the world – and that they did so with intent to profit.  This was not a “one-off” event predicated by some government official; it was an on-going series of intentional acts.

But just as with the other scams of this sort, nobody has been indicted, prosecuted or jailed, and until they are, it simply is not going to stop.  We the people of this nation and indeed of the world must decide if, and when, we’re going to stop allowing this serial financial rape to be perpetrated upon us.

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