Traders at Deutsche Bank AG (DBK), HSBC Holdings Plc (HSBA), Societe Generale SA (GLE) and Credit Agricole SA (ACA) are under investigation for interest-rate manipulation in a global probe that led to a record fine for Barclays Plc (BARC) last month, a person with knowledge of the matter said.
Regulators are examining the possible roles of Michael Zrihen at Credit Agricole, Didier Sander at HSBC and Christian Bittar at Deutsche Bank, said the person, who asked not to be identified because the probe is continuing. Investigators are focusing on their links to Philippe Moryoussef, an ex-trader at Barclays, which was fined $451 million for rigging the euro and London interbank offered rates, the person said.
Barclays employees tried to manipulate Euribor and Libor for profit, while managers instructed rate-setters to make artificially low submissions to avoid the perception the lender was under stress amid turmoil in credit markets in 2007 and 2008. At least a dozen banks are being probed by regulators worldwide for rigging the rate, and regulators from Stockholm to Seoul are re-examining how benchmark rates are set amid concern they are just as vulnerable to manipulation as Libor.
“We are starting to see a whole heap of ‘me too’ style investigations and possible reappraisals of how indexes of all sorts are set,” said Bob Penn, partner at law firm Allen & Overy LLP in London. “Wherever there’s a market that’s not sufficiently liquid and not sufficiently transparent for daily pricing to be observable, you have this problem.”
At least 34 traders have been caught up in the scandal, either being fired or suspended by their employers or put under investigation by U.K. or U.S. authorities. That includes employees from Lloyds Banking Group Plc, Mitsubishi UFJ Financial Group Inc., Royal Bank of Scotland Group Plc, UBS AG, Citigroup Inc., Barclays and JPMorgan Chase & Co.
The Libor scandal has also ensnared officials from the Bank of England, who have been accused of encouraging banks to communicate about their rates. Three top Barclays executives -- Chairman Marcus Agius, Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier -- have resigned following pressure from regulators and Parliament.
Stibor, Sweden’s main interbank rate, and Tibor in Japan are among rates facing renewed scrutiny because, like Libor, they are based on banks’ estimated borrowing costs rather than real trades. The Japanese Bankers Association yesterday asked the 16 banks that contribute to the rate answer questions on how they make their submissions.
Central bankers will join Bank of England Governor Mervyn King in September to review the future of Libor in September. The Financial Stability Board will consider alternatives to Libor, the benchmark for at least $500 trillion of securities from derivatives to mortgages.
The U.S. Commodity Futures Trading Commission, in its settlement with Barclays last month, said one of the London- based bank’s traders tried to align strategies with at least four other banks’ traders to profit from positions in certain futures contracts. The Financial Times reported names of the banks and traders earlier.
Federal Reserve Chairman Ben S. Bernanke said regulators, including the CFTC and U.S. Securities and Exchange Commission, are investigating.
“There’s any number of enforcement agencies, including the Department of Justice, CFTC, SEC and foreign and state regulators, looking at this,” Bernanke told a House panel yesterday as part of his semi-annual testimony to Congress. “I’m sure that they will apply the law appropriately.”
Traders involved in the alleged manipulation may be charged by U.S. prosecutors before the Labor Day holiday on Sept. 3, said a person with knowledge of the Justice Department investigation in Washington.
Libor is determined by a daily poll carried out on behalf of the British Bankers’ Association that asks banks to estimate how much it would cost to borrow from each other for different periods and in different currencies. Similarly, Euribor, the euro equivalent, is overseen by the European Banking Federation in Brussels.
Swiss fund manager Lombard Odier Darier Hentsch & Cie., where Zrihen now works, said in an e-mailed statement that he is no longer trading as the company investigates his role in the alleged rigging. Zrihen joined Lombard in December 2010. The firm has no involvement in the setting of Euribor or Libor.
Bittar, who now works at Bluecrest Capital Management LLP, Europe’s third-biggest hedge fund with $30 billion under management, didn’t respond to a phone call and e-mails seeking comment. A spokesman for the firm declined to comment.
Zrihen didn’t reply to e-mails, and Sander didn’t answer a message sent to a Facebook account under that name.
Michael Golden, a spokesman for Deutsche Bank, confirmed that Bittar left the bank last year and declined to comment on the investigation. Deutsche Bank has disclosed that it is cooperating with regulators in the U.S. and Europe in the probe.
Credit Agricole said in a statement today it hasn’t been accused of any wrongdoing and has responded to requests from the authorities. The lender said it didn’t contribute rates to Libor from 2005 to 2009. The bank does contribute to Euribor.
Barclays spokesman Giles Croot and HSBC spokeswoman Juanita Gutierrez declined to comment. Societe Generale is “fully” cooperating with regulators, spokeswoman Helene Mazier said.
HSBC rose 0.2 percent to 546.9 pence as of 2:25 p.m. in London trading. Credit-default swaps insuring HSBC Bank Plc’s five-year bonds have fallen about 11 basis points to 131.065 from the beginning of the year in New York, according to prices compiled by data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.
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