Feds Conducting Criminal Probe Involving World's Biggest Banks

Feds Conducting Criminal Probe Involving World's Biggest Banks
Reuters | February 28, 2012

(Adds background about Libor, investigations)
By Carrick Mollenkamp
NEW YORK, Feb 28 (Reuters) - The U.S. Justice Department is conducting a criminal probe into whether the world's biggest banks manipulated a global benchmark rate that is at the heart of a wide range of loans and derivatives, from trillions of dollars of mortgages and bonds to interest rate swaps , a person familiar with the matter said.
While the Justice Department's inquiry into the setting of the London interbank offered rate, or Libor, was known, the criminal aspect of the probe was not.
A criminal inquiry underscores the serious nature of a worldwide investigation that includes regulators and law-enforcement agencies in the United States, Japan, Canada and the UK.
Several major global banks, including Citigroup Inc , HSBC Holdings Plc, Royal Bank of Scotland Group Plc and UBS AG, have disclosed that they have been approached by authorities investigating how Libor is set.
No bank or trader has been criminally charged in the Libor probes. It wasn't clear which banks or traders the Justice Department is targeting in its criminal probe.
The Justice Department and the banks declined to comment .
Libor is set everyday in London for 10 currencies for a range of maturities. The rate is supposed to reflect the rate at which banks lend to one another. Dollar Libor, for example, is calculated after 18 banks submit the costs to borrow dollars.
The rate underpins $10 trillion in loans to consumers and companies and another $350 trillion in derivatives. In the derivatives market, Libor is used in the pricing of the massive and popular interest-rate swaps market, where two parties swap floating- and fixed-rate interest payments. Libor typically is used as the basis for the floating rate.
The investigations are examining whether traders at the banks tried to influence whether the rate went up or down. A change in the rate could mean a windfall of tens of millions of dollars if a trader has bet correctly on the direction of Libor.
Swiss bank UBS is playing a key role in the probes because it agreed to come forward and cooperate in the inquiries.
The bank said in a regulatory filing it has been granted conditional leniency or conditional immunity by the antitrust division of the Justice Department and the Swiss Competition Commission.
In recent months, probes in Japan and Canada have focused on a group of interest-rate traders who attempted to manipulate yen Libor, according to court and regulatory documents.
In Ontario Superior Court, a Canadian antitrust regulator said that a "cooperating party" has provided information on how the alleged manipulation took place. The cooperator is UBS, people familiar with the situation said previously.
The Canadian documents provide examples of how a trader at the cooperating bank contacted traders at banks such as RBS to try and influence Libor. (Reporting By Carrick Mollenkamp; Editing by Gary Hill, Tim Dobbyn, Paritosh Bansal and Steve Orlofsky)