The latest fines imposed on a bank for the Libor-rigging scandal have produced another crop of embarrassing emails, messages and recorded telephone calls.
This time it is the traders of Royal Bank of Scotland who find the private scheming exposed to the public gaze.
Below are a selection of the conversations – most of them via Bloomberg’s instant messaging system – that have been published by the Commodity Futures Trading Commission, one of the US financial regulators – and an explanation of what they mean.
The emphasis is added by the BBC. The spelling and grammar is as per the original communications.
Normally interest rates react to interventions by the US central bank, the Federal Reserve.
This refers to the setting of Japanese yen interest rates in London.
In other words, the six-month borrowing rate RBS submitted managed to influence the Libor rate for the day.
The British Bankers’ Association is the industry body that calculates the Libor rates based on the borrowing rates submitted to it by London-based banks, including RBS.
The conversation occurred during the credit crunch in the early days of the financial crisis. At this time, investors were looking closely at the interest rate that banks had to pay in order to borrow money, as an indicator of whether markets still had confidence in them. Lowering RBS’s Libor submissions would therefore create the false impression that RBS was in a stronger position than it really was.
The submitter’s job is to tell the BBA what RBS’s borrowing cost for the day is. This submission is then used by the BBA, along with all the other banks’ submissions, to calculate the day’s Libor rate.
Interdealer Broker: Hello mate, [Yen Trader]? You all set?
The broker is not an RBS employee. His or her job is to help set up large transactions big banks such as RBS, as well as big investors, while protecting their anonymity and details of their transaction, so that other traders cannot manipulate the market against them. Brokers typically earn a percentage fee on the transactions they facilitate.
Interdealer Broker: Right listen we’ve had a couple of words with them, you want them lower right?
Interdealer Broker: Alright okay, alright listen, we’ve had a couple words with them. You want them lower, right?
Interdealer Broker: Alright okay, alright, no we’re okay just confirming it. We’ve, so far we’ve spoke to [unnamed bank]. We’ve spoke to a couple of people so we’ll see where they come in alright. We’ve spoke, basically one second, basically we spoke to [unnamed bank], [unnamed bank], [unnamed bank], who else did I speak to? [Unnamed bank]. There’s a couple of other people that the boys have spoke to but as a team we’ve basically said we want a bit lower so we’ll see where they come in alright?
The broker lists the names of four other major banks in total. The names have been censored by the US regulators. It is worth noting that these four banks do not include UBS, whose name has not been censored in the transcripts. Throughout all the transcripts, nine separate anonymous banks are alluded to besides RBS and UBS.
Interdealer Broker: Cheers no worries mate.
The broker is asking the RBS trader to help set up a “wash trade” so that the UBS trader can pay the broker some fees (“bro”) in return for some unnamed illicit favour provided by the broker. In the wash trade, UBS will sell something to RBS, and then buy it straight back from RBS again. The trades are totally fatuous, as they will cancel each other out. The broker will arrange the trade, charging UBS fees along the way. The broker is telling the RBS trader that they won’t get the benefit of any of the brokerage commission, but is offering instead to compensate them for the favour by paying for lunch to be delivered to all the RBS traders.
Interdealer Broker: Yeah. Yeah. 100 yards … actually can you make it 150 and I’ll send lunch around for everybody?
Interdealer Broker: Thanks very much. Cheers. Cheers, mate and you choose lunch.
The previous year, the British Bankers’ Association had laid down new guidelines about how banks should submit their Libor rates, in order to ensure that they were not influenced by traders.
Unfortunately the pair seemed to have forgotten that all calls made over the traders’ telephone lines are recorded by the bank, and the call transcripts can be subpoenaed by the regulators.