By Sara Webb
AMSTERDAM Oct 29 U.S. and European regulators
have fined Dutch lender Rabobank $1 billion for rigging
benchmark interest rates, making it the fifth bank punished in a
scandal that has helped to shred faith in the industry.
Rabobank said on Tuesday it would pay 774 million euros to
U.S., British and Dutch regulators after 30 staff were involved
in "inappropriate conduct" in scam to manipulate the London
Interbank Offered Rate (Libor) and its Euribor cousin -
benchmarks for more than $300 trillion of financial assets.
Chief Executive Piet Moerland resigned, saying he was
shocked by language revealed in emails exchanged by staff
involved over six years to 2011. He acknowledged it would arouse
indignation, both within an institution founded as a cooperative
and among the public at large.
"Such behaviour is entirely contrary to our core values, of
which integrity is the most important," he said.
Japan's banking regulator also ordered the Tokyo branch of
Rabobank to bolster its legal compliance procedures after
finding that a trader had tried to manipulate the setting of yen
Libor. Rabobank said it was closing its branch in Japan, cutting
30 jobs and leaving just a representative office.
The scandal surrounding the interbank rates that oil the
wheels of global finance has prompted authorities to fine five
institutions $3.7 billion to date. They have also charged seven
men with criminal offences amid a sprawling, global inquiry that
has laid bare the failings of regulators and bank bosses.
Around five years after the world's financial system buckled
and forced taxpayers to fund huge rescues of crippled banks,
public and political outcry has been stoked in part by industry
gripes about tough new rules to rein in excessive risk-taking
and fat bonuses blamed for feeding greed.
Dutch Finance Minister Jeroen Dijsselbloem said Rabobank's
"shameless fraud by financiers" was far removed from the
cooperative ideals of the lender's founders.
But the size of the fine imposed on Rabobank - a mutual
lender that finances Dutch cheese and tulip producers and which
has abolished executive board member bonuses - sends a stark
message to institutions such as Germany's Deutsche Bank
, which have yet to reach regulatory settlements.
It is the second largest penalty to date and bigger than
initially expected at a time when banks are also setting aside
billions of euros to cover civil litigation costs from clients
who allege they were short-changed by the scam.
Deutsche, Germany's largest bank, set aside an extra 1.2
billion euros on Tuesday to deal with potential litigation
costs, while UBS in Switzerland was told to hold extra
capital to cover looming liabilities.
Sipko Schat, a Rabobank board member, said the bank had only
learned the fine would be about $1 billion six or seven weeks
ago - indicating that regulators are taking an increasingly
tough stance. Back in February, a fine of the order of $450-$600
million had been expected.
Britain's Financial Conduct Authority (FCA) said the
Rabobank fine was particularly high because it had failed to act
after an employee responsible for submitting the bank's
yen-denominated Libor rates told an internal audit group in 2009
his submissions were based on instructions from traders.
In March 2011, Rabobank had told the British regulator its
Libor-related systems and controls were "fit for purpose".
The FCA said it had found over 500 instances of attempted
Libor manipulation, directly or indirectly, involving at least
nine managers and 19 other individuals based across the world.
"Rabobank's misconduct is among the most serious we have
identified on Libor," said Tracey McDermott, head of financial
crime at the FCA. "This is unacceptable."
CROOKS IN THE MARKET
The U.S. Justice Department agreed to defer criminal charges
against Rabobank for two years, and drop charges if the lender
complied with demands to cooperate in investigations.
Documents released by regulators showed Rabobank staff
taking a dismissive attitude to regulations.
When one yen derivatives trader in 2007 asked a colleague
responsible for answering the daily survey used to set Libor to
give a false rate, the submitter responded by email: "Don't
worry mate - there's bigger crooks in the market than us guys!"
In 2006, a Rabobank dollar derivatives trader repeatedly
asked the head of the bank's money market desk in London, who
supervised the rate submitters, for rates that favoured his
positions. After one request in December, the desk head wrote
back: "I am fast turning into your LIBOR bitch!!!!"
Rabobank, which said it was committed to "learning the
lessons of the past", has tightened systems and controls. Of the
30 staff involved, 10 had already left the bank, five were fired
with a sixth case pending, and 14 have been disciplined, board
member Schat told Reuters. The bank stressed it was financially
strong enough to withstand the fine.
Although it said no executive board members had been aware
of or involved in the misconduct, the board had voluntarily
forfeited remuneration worth a total of 2 million euros.
UBS has faced the largest Libor penalty to date. It was
ordered to pay $1.5 billion last December and two of its former
traders have been charged with taking part in an alleged
multi-year scheme to rig rates.
The Libor scandal has prompted regulators to scrutinise
benchmarks across financial markets, from crude oil and swaps
and gold to the $5.3 trillion-a-day foreign exchange market in
an effort to stamp out misconduct.
"I wish I could say that this won't happen again, but I
can't," noted Gary Gensler, the chairman of the U.S. Commodity
Futures Trading Commission (CFTC). "Libor and Euribor are not
sufficiently anchored in observable transactions.
"Thus, they are basically more akin to fiction than fact."