“I wish I could say that this won’t happen again, but I can’t,” said Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, as Rabobank became the latest bank to pay for rigging interest rates.
Regulators in the United States, Britain and the Netherlands ordered the Dutch lender to pay €774 million ($1.07 billion). Rabobank announced the fine on Tuesday. It was the fifth penalty in the Libor affair and the second largest so far, bigger than many had expected.
Thirty staff, six years
The regulators said 30 Rabobank employees took part in “inappropriate conduct” connected to Libor, the London Interbank Offered Rate, and to its Euribor counterpart. Together the two benchmarks price more than $300 trillion of financial products. The scheme ran between 2005 and 2011.
Britain’s Financial Conduct Authority found over 500 instances of attempted manipulation, direct or indirect, involving at least 9 managers and 19 other people in several countries. Tracey McDermott, the FCA’s head of financial crime, said: “Rabobank’s misconduct is among the most serious we have identified on Libor. This is unacceptable.”
The emails are blunt. In 2007, a yen derivatives trader asked a rate submitter for a high Libor figure. The reply: “Don’t worry mate – there’s bigger crooks in the market than us guys!” A year earlier, a dollar derivatives trader kept pressing the head of the London money market desk for rates that suited his positions. After one December request, the desk head wrote back: “I am fast turning into your LIBOR bitch!!!!”
The FCA said the fine was especially high because Rabobank did not act after the employee who submitted its yen Libor rates told an internal audit group in 2009 that he based them on traders’ instructions. In March 2011 the bank had also assured the UK regulator that its Libor systems and controls were “fit for purpose.”
Fallout inside the bank
Chief executive Piet Moerland announced his early retirement. He said he was shocked by the language of current and former staff and understood the indignation it would cause inside and outside the bank. “Such behaviour is entirely contrary to our core values, of which integrity is the most important,” he said.
Dutch Finance Minister Jeroen Dijsselbloem went further, saying the “shameless fraud by financiers” was far from the cooperative idea behind Rabobank. The bank is a cooperative that finances Dutch cheese and tulip producers, and it dropped bonuses for executive board members in October.
Rabobank said it has tightened its systems and controls, and has fired, warned, fined and demoted staff involved. It said no executive board member knew of or took part in the misconduct, though the board voluntarily gave up pay worth 2 million euros in total. Board member Sipko Schat told Dutch broadcaster RTL that the bank had set aside enough to cover the settlement.
In the US, the Justice Department agreed to defer criminal charges against Rabobank for two years and to drop them if the lender tightens its controls as demanded.
Other banks and the wider inquiry
Reuters put the total fined so far at $3.7 billion across five institutions. Seven men face criminal charges. UBS drew the largest Libor penalty, $1.5 billion last December. Two of its former traders, Tom Hayes and Roger Darin, have been charged. Hayes is accused of conspiring with 22 employees from more than 10 financial institutions, Rabobank among them, and he is the first to face trial in Britain. He has yet to plead.
Other lenders are still waiting. Germany’s Deutsche Bank set aside an extra 1.2 billion euros on the same day for potential litigation costs, and Swiss UBS was told to hold extra capital against looming liabilities. Regulators have since begun examining benchmarks in crude oil, swaps, gold and the $5.3 trillion-a-day foreign exchange market.
Gensler gave his own verdict on the rates at the center of the case: “Libor and Euribor are not sufficiently anchored in observable transactions. Thus, they are basically more akin to fiction than fact.”
