Rabobank agrees $1bn rates manipulation settlement

Dutch lender Rabobank has paid more than $1bn to US, UK, and Dutch authorities to settle allegations that it manipulated Libor and other key benchmark rates, a scandal that has implicated top managers and claimed the bank’s chief executive.

On Tuesday, Rabobank said that nearly 30 employees were involved in “inappropriate conduct”, and that its chief executive, Piet Moerland, would resign with “immediate effect”. Rinus Minderhoud, member of the bank’s supervisory board, will replace him on an interim basis, it said.

The total $1.06bn fine levied against Rabobank, a co-operative bank founded by farmers that traces its roots back to the 19th century, is far more severe than original estimates, after authorities found pervasive misconduct over six years reaching into the echelons of management. It is the second-highest legal settlement in the sprawling Libor probe, after the $1.5bn paid by UBS in December.

Rabobank admitted to the misconduct through a so-called deferred prosecution agreement with the US Department of Justice. The authorities found that about 26 Rabobank employees, including seven managers, had attempted to manipulate both Libor and Euribor, the Brussels equivalent, in three different currencies from 2005 to 2011 at locations including Tokyo, London, Utrecht and New York.

“For years, employees at Rabobank, often working with traders at other banks around the globe, illegally manipulated four different interest rates – Euribor and Libor for US dollar, yen, and pound sterling – in the hopes of fraudulently moving the market to generate profits for their traders at the expense of the bank’s counterparties,” said Mythili Raman, acting assistant attorney-general of DoJ’s criminal division.

There were 508 documented requests to rig Libor and Euribor, the authorities said, including 12 requests from Rabobank employees to two people at a rival bank that also submitted rates. Four brokers at two interdealer brokerage firms were also involved, the authorities alleged.

The findings included instant-message chats that underscored the casual nature with which traders and submitters at the bank traded information.

“I am fast turning into your Libor bitch!!!” wrote one money-markets manager at Rabobank in 2006 in response to a request from a dollar-derivatives trader at the Dutch bank to raise the rates for three-month dollar Libor submissions.

“Just friendly encouragement that’s all, appreciate the help,” the trader replied.

“No worries mate, glad to help . . . We just stuffed ourselves with good oil’ pie, mash n licker!”

The bank told submitters to ask traders for “market colour” before making submissions as recently as 2010, the UK Financial Conduct Authority said.

Sipko Schat, head of Rabobank’s international wholesale clients division, told the Financial Times: “We really regret what has happened, it is disgraceful.” Five of the employees have been sacked, Rabobank confirmed. Another 10 had previously left.

According to the FCA, whose portion of the total fine stood at £105m, Rabobank did not fully overhaul its compliance policy relating to Libor until 2012, and made “inaccurate” submissions to the regulator during its investigation.

Mr Schat said the bank had taken decisive action following its almost four year internal probe into the matter. He said those measures included heavy investments in risk management and controls, cutbacks at its investment bank including the closure of its Japanese office, a program to improve the culture and stricter bonus rules.

Libor, or the London Interbank Offered Rate, is the benchmark that helps determine the value of more than $350tn of loan products worldwide, from mortgages to complex derivative products. It is a daily average calculated after 16 banks submit rates in different currencies and time periods.

Gary Gensler, chairman of the Commodity Futures Trading Commission, “Through hundreds of manipulative acts spanning six years, in six offices, and on three continents, more than two dozen Rabobank employees, including a senior manager, manipulated, attempted to manipulate and falsely reported crucial reference rates in global financial markets. Rabobank employees also aided and abetted other banks to manipulate benchmark interest rates.”

At least 10 authorities around the world are investigating as many as 20 financial institutions. Rabobank is the fifth company to settle, following Barclays, UBS, the Royal Bank of Scotland and ICAP.

The DoJ did not file criminal charges against individuals as part of today’s global settlement with Rabobank. People familiar with the criminal probe told the Financial Times, however, that the DoJ is still investigating Paul Robson, a former money-market manager who left the bank in 2008, and weighing whether to file charges in the near future.

Mr Robson was previously named as one of 22 co-conspirators in a draft indictment prepared by the UK Serious Fraud Office against Tom Hayes, a former yen derivatives trader at UBS and Citigroup. The SFO has scrapped the indictment and will prepare a new one removing all co-conspirators’ names. The co-conspirators had previously been told they were not formally accused of wrongdoing but may face investigation.

Rabobank, settled on Tuesday with the DoJ, the US CFTC, the UK FCA, the Dutch central bank, the Dutch public prosecutor and the Japanese Financial Services Agency.

The European Commission, which oversees antitrust matters in Brussels, is expected to announce its findings against a number of financial institutions as part of a parallel probe by the end of the year.

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Rate-setting process under careful watch

Libor, or the London Interbank Bank Offered rate, is the average interest rate that leading banks believe they can borrow from each other. It is used as a benchmark for about $350tn of financial products.

Following the scandal, the UK Financial Conduct Authority has brought the rate-setting process under its watch, while NYSE Euronext, which owns the London derivatives exchange Liffe, won the contract to calculate Libor.

The transatlantic exchanges operator is expected to consult with regulators and market participants to come up with ways to link Libor more closely to real transactions without upsetting the existing contracts.

UK and US enforcers are still investigating other banks and interdealer brokers including, Citigroup, Lloyds, and Deutsche Bank among others.

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