Bloomberg News

Barclays Libor Fine Prompts U.K. Criminal Investigation

July 06, 2012

Libor Criminal Investigation Opened by U.K. Fraud Prosecutors

Barclays Plc was fined $451 million last week in the U.K. and U.S. after it admitted to submitting false Libor rates to benefit derivatives trades and bolster its own financial position. Photographer: Chris Ratcliffe/Bloomberg

The U.K. Serious Fraud Office opened a criminal probe into the attempted rigging of interest rates that led to a record fine against Barclays Plc (BARC), adding to pressure on banks already under investigation by regulators around the globe.

SFO Director David Green said he had decided to “accept the Libor matter for investigation” in an e-mailed statement today. Barclays fell as much as 3.8 percent in London trading.

Politicians including Chancellor of the Exchequer George Osborne and Opposition Labour leader Ed Miliband called for a criminal probe after Britain’s second-biggest bank was fined $451 million last week in the U.K. and U.S. for submitting false Libor rates. Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier resigned over the scandal.

“It’s very difficult for us to assess the legal risk,” said Vivek Raja, an analyst at Oriel Securities Ltd. in London. “It’s just a big investment uncertainty and the potential legal liabilities around these issues haven’t been quantified.”

Barclays spokesman Giles Croot didn’t immediately respond to a voicemail seeking comment. The London-based bank’s shares fell 2 percent to 164.75 pence as of 4:35 p.m. in London trading. The stock has dropped 6.4 percent this year.

Other Probes

The SFO joins the U.S. Department of Justice in criminally investigating how derivatives traders and rate submitters colluded to rig interbank offered rates. The U.K. Financial Services Authority is seeking civil penalties against banks and has said its criminal powers don’t include Libor rigging.

As part of the U.S. and U.K. settlements, Barclays admitted rigging the London interbank offered rate, or Libor, as well as Euribor, its equivalent in euros, as early as 2005. In testimony to Parliament this week, Diamond apologized and said 14 Barclays traders were involved.

Citigroup Inc., Royal Bank of Scotland Group Plc, UBS AG, ICAP Plc, Lloyds Banking Group Plc and Deutsche Bank AG are among the firms regulators are investigating. About 18 banks are surveyed as part of the process of determining Libor rates.

Osborne told lawmakers last week that the FSA was in touch with the SFO about a criminal investigation. Prior to that, Richard Alderman, who stepped down as director of the SFO over two months ago, had said the agency wasn’t involved in the inquiry. People familiar with the FSA probe said last month that suspects were told to expect civil penalties.

SFO Probes

The SFO was criticized under Alderman for taking on high- profile investigations, including American International Group Inc.’s Financial Products unit and convicted swindler Bernard Madoff’s London operations, only to close them later citing a lack of evidence. The agency has also faced a shrinking budget, a fight with the Home Office to save the SFO from dissolution, and a staff exodus prior to Green’s arrival.

The SFO is “very brave” to investigate Libor, said Richard East, a lawyer at Quinn Emanuel Urquhart & Sullivan LLP in London. “It’ll cost them a huge amount of money. They’ll obviously score direct hits with the particular traders, but will they catch the big fish? I don’t think so.”

Osborne said last week the number of people under formal investigation by the FSA is “expected to increase.”

Libor, Euribor

Libor and Euribor are calculated by a survey of banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies. Because submissions aren’t based on real trades, the potential exists for the benchmark to be manipulated by traders seeking to profit on where the rate is set. Barclays’s executives also were downplaying their borrowing costs by making low submissions to avoid the perception they were struggling to raise funding, according to regulators.

Barclays is assisting the investigation into other firms and individuals and was the first to provide “extensive and meaningful cooperation,” the U.S. Justice Department said.

FSA Chairman Adair Turner said this week that its probes will result in more settlements “before the end of the year.”

To contact the reporter on this story: Lindsay Fortado in London at lfortado@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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