Barclays PLC (NYSE:BCS) (LON:BCS) UBS AG (NYSE:UBS) and Royal Bank of Scotland Group plc (LON:RBS) (NYSE:RBS) – and Deutsche Bank AG (NYSE:DB) in particular are under pressure for the Libor Scandal.
Summery: It seems those three banks have been central to the LIBOR interest rigging.
Comment: One should note, that only Deutsche Bank AG (NYSE:DB) has headquarters in an Euro-zone country!
The new executives of Deutsche Bank are certain to attract attention when they for the first time present their reports next Tuesday. The most exiting will be: How much will Anshu Jain and Jürgen Fitschen reserve for legal costs, fines and damages in one of the greater scandals?
Die FAZ makes a neat observation:
The problem is: When the LIBOR and EURIBOR was invented the financial world was in working order. Banks did in fact lend each other money without collateral, so you could read off the interest rate on these transactions. That is hardly the case today. That is: There are hardly any real deals from which you can base the quoted interest rates. That is easily ”arranged”: You simply report the numbers that suits you.
Corollary: This confirms that interbank lending is a legend of the past to all intentions and purposes: The international money market simply does not exist anymore!
How did they get away with it? FAZ continues:
The swindlers wrote all the e-mails that dealt with manipulations in French. That kept them from being found out a for a while, because all the computer surveillance programmes of the bank inspections that monitors the dealer e-mails for irregularities were only programmed to find English terms.
Supposedly one of the first reactions to the scandal was that the bank inspections started using multi language search programmes.
Personal comment and observation:
This report indicates that the FAZ has some CB inside source to tell them such details. The information is indubitably correct: Some years ago (fitting the beginning of the 2005-09 timeframe) I wondered – going through research grants to business schools – that there was an unusual willingness from the EU to make money available (neat sums) to researchers in French and to some extend Spanish; but totally neglecting German! That was distinctly odd as the trade between Denmark and Germany far exceeds the one with France. Strange – also because there wasn’t student interest to justify an independent German department.
The explanation offered was that there was an EU interest in the dictionaries that form the basis of translation programmes. At the time I thought it had something to with anti-terror monitoring; but this information brought by the FAZ makes much more sense and needs a much smaller tin foiled hat. There were also some weird grants on subjects that the French should have researched themselves a century ago – (so called “Bellybutton Lint” grants).
But back to Deutsche Bank:
Just a few weeks after Anshu Jain taking office this matters very much. Anshu Jain resided at the time in London – where the incidents took place – and understands investment banking. There was some back stabbing already during the promotion process, where he and Jürgen Fitschen were selected to succeed Josef Ackermann. Now his opponents (Ackermann being one of the bitterest) feel themselves vindicated. They had constantly warned against legal risks in investment banking before and into the financial crisis – these may now boil over. Now they gloat: We told you so!
Small wonder that Deutsche Bank is trying to pull Jain out of the front line. Up to now the investigators have not found proof that Jain was directly involved. 34 million e-mails from Deutsche Bank employees have been scanned with search programmes for words that could indicate directions. Jain’s personal emails were checked individually. It could not be proven that the fraud had been ordered”from above”.
Deutsche Bank has gone through the motions of being “tough on crime”: Sacked a few dealers and impounded their bonuses; still the State Authorities keep announcing they will react with arrests and fines.
The opposition in Germany blusters with indignant rage against the banks – butchering is a term used as to the demanded action. This is hardly unwelcome to the Bundeskanslerin and Finance Minister – they have an instant majority to any proposal – as long as it is cruel (as well as unusual) to banks and bankers. The banks will have the choice between the rope or the axe.
Barclays PLC (NYSE:BCS) (LON:BCS) is a bit different: To give the impression that the bank could easily borrow money the CEO ordered the report of artificially low interest rates. Not only that, but they were actively encouraged by the CB (Bank of England)! It was a tossup between the taxpayers and sheiks from the Gulf – so the banks cheated and the sheiks supported. When it came out it was a bowling alley of rolling heads.
No so in Deutsche Bank! Management has apparently been shrewd enough to have nothing in writing but the board will have a hard time defending Anshu Jain that as a bare minimum has exhibited gross neglect of duty: The lawsuits are piling up from across the world, investors and counties – you name it. Morgan Stanley (NYSE:MS) has estimated over 1 bio. EUR – very low end. The cases will be very complicated and likely to be tied up in courts for ages. The ballpark figure is relevant, as 2011 equity is 2.4 bio. EUR (according to Wikipedia).
It will indeed be an interesting presentation of the half year report: What reservations are made for pending lawsuits in the same order of magnitude as the equity?
On a general note:
This is something that has been in the making a very long time. The mere fact that bank inspections have been forced to develop tools just to keep rudimentary track of the banks is an indicator of the gravity of the situation. The sacrificial offerings are apparently just wetting the appetite.
We have seen the process in other banks: First the board is replaced, then the CEO’s, then the other executives (the first ploy is internal promotion to keep the lid on), then calling in “fresh eyes” in executive positions. The stage generally arrived at is at the moment pre-legislative measures such as the British “White Paper: Banking Reform” and the meeting of CB’s in the beginning of September in Basel.
There are systematic and consistent measures being taken in the EU – but not only there: Even Canada has been drawn into the LIBOR scandal – measures taken to separate the economic issues from the financial. For quite some time the least qualified analysts of the economic developments (at least in Europe) are the banks. The banks are fighting for survival and are in no way squeamish who they drag down with them. The political and administrative systems are however (apparently) reasonably aware of the situation and are not liable to passively accept having their powers stolen. Japan is the basket case display nobody wants to imitate.