PGDM BANKING AND FINANCIAL

SERVICES
NON-MARKET STRATEGY
ANALYSING THE LIBOR SCANDAL; BARCLAYS BANK

SUBMITTED TO: PROF. LEONARDO MEEUS

SUBMITTED BY, GROUP 8:

Mrinav Sharma (190601020)
Puneet Garg (190601022)
Salil Holkar (190601025)
Saptarshi Chattopadhayay (190601026)

About the bank

HDFC bank established in August 1994, is now the country’s largest private sector bank by assets and
the largest bank by market capitalization. HDFC Bank provides a number of products and services
including wholesale banking, retail banking, treasury, auto loans, two-wheeler loans, personal loans,
loans against property, consumer durable loan, lifestyle loan and credit cards. Along with these,
various digital products are Payzapp and SmartBUY. In 2019, HDFC Bank was the winner in
Innovation & Inclusiveness in Priority Sector Lending – 11 th Inclusive Finance India Awards and has
been awarded the Best Bank by Euromoney in 2020 and 2019.

About the scandal

Beginning in 2012, an international investigation in LIBOR brought light to the widespread plot
especially banks like Deutsche Bank, Barclays, UBS, Rabobank and Royal Bank of Scotland to
manipulate the interest rates for profit to their derivatives traders starting from as back as 2003.
Investigation exposed many institutions, filed several lawsuits and shook the trust in the global
financial system.

Barclays and fifteen other global financial institutions colluded to manipulate LIBOR rate from 2003.
Barclays was the first to manipulate LIBOR during 2005-2007 so that its traders could make profits
on derivatives pegged to the base rate. During that time swaps traders often asked Barclays
employees to provide rates that would benefit the traders instead of submitting the rate the bank
would actually pay to borrow. Certain traders at the bank coordinated with other bank members to
alter the rates. The LIBOR was moved upwards or downwards based on trader’s position.

In 2012 as a part of settlement with US and UK authorities, Barclays admitted to misconduct in the
manipulation of rates. The investigation continued to UBS bank and focused on UK trader Thomas
Hayes who was the first person convicted of rigging the LIBOR rates. This allowed him to post
hundreds of millions of profits to the bank after which he moved to Citi bank. During that time a lot
of fraudulent collusions happened between Tom Hayes and traders at Royal Bank of Scotland to
affect submissions across multiple banks.

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Timeline

 January, 2005- There was evidence that Barclays started manipulating dollar LIBOR and
Euribor. Barclays derivatives traders started making requests to fix LIBOR rates
 September, 2007- Onset of financial crisis led to public scrutiny of liquidity concerns of
Barclays. Barclays manipulated LIBOR to give healthier picture of bank’s financial health to
dissuade media attention. Lower submissions deflected the concerns that it had problems
borrowing money from the markets hence Barclays submissions were always on the higher
side.
 6 December, 2007- Barclays compliance officer raised concerns to BBA and FSA over
problematic actions taken by other banks as they maybe understating LIBOR submissions.
But did not mention anything about unscrupulous submissions done by Barclays itself.
 11 April, 2008- Barclays employee explained US Fed about the understated submissions
done by the bank to avoid stigma associated with being outlier relating to submissions done
by other participating banks.
 16 April, 2008- Barclays treasury manager informed BBA about misinforming bank
submissions but defended bank saying that they had to respond to avoid being in the
alienated zone by cooperating with other participating banks.
 10 June, 2008- BBA published a consultation paper seeking comments to modify the
architecture of LIBOR. They proposed to engage transparency and credibility in the
submissions.
 2 November, 2008- BBA circulated guidelines for all contributor banks to setting LIBOR rates
but Barclays ignored it. In December bank started improving its systems but still ignored BBA
guidelines. Until 2009 Barclays did not have Chinese wall between derivatives traders and
LIBOR submitters.
 June, 2009- Barclays made it clear to submitters that any communications with external
traders will not be tolerated and strict action might be taken if found so and considered as
attempt to influence the submissions.
 27 June, 2012- Barclays admitted to understate the submissions deliberately for profits. UK’s
FSA imposed a penalty of 59.5m pounds to Barclays. Department of Justice, US and CFTC
imposed fines of 102m pounds and 128m pounds respectively amounting to a total penalty
of 290m pounds to be paid by Barclays.
 16 July, 2012- Barclays COO Jerry Del Missier told MPs that he was asked by Bob Diamond,
CEO to lower the submissions and he also blamed Bank of England to instruct Barclays to do
so.
 16 August 2012- Seven banks including Barclays, HSBC and RBS to face legal questioning in
US. Other banks like Citigroup, deutsche bank, JP Morgan and UBS to receive subpoenas
from attorney generals of New York and Connecticut.
 28 September, 2012- FSA confirmed that BBA will no longer be administering LIBOR
submissions and would be replaced by data provider such as Bloomberg or Reuters
 2 February, 2013- The chancellor of exchequer George Osborne said the fines imposed on
the banks be paid by the individuals responsible for the scandal and by the taxpayer’s
money.

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 Impacts & Penalties

Many Banks across the globe use LIBOR rates for setting interest rates on consumer and corporate
loans. Hundreds of Trillions of dollars is linked to LIBOR including government and corporate debt
bonds, home, auto and students loans. When LIBOR increases interests and payments also increase
likewise payments goes down with LIBOR going downwards. LIBOR also provides economists and
regulators with the current picture about the financial situation of the market and the relations
among the banks.

LIBOR scandal eroded trust from the financial system among the common public. Banks involved in
the scam could end up paying $35 billion dollars in total in private legal settlements. This could a
threat to financial institutions as they are required to reserve larger sum of money for liquidity
according to new Basel III norms.

As of now all participating banks in scandal paid a sum total of $9 billion. Barclays settled with UK’s
and US’ regulatory authorities by paying total dues of $435 million in July, 2012 and paid additional
$100 million to US states for manipulating LIBOR rates. Swiss bank UBS was penalized with $1.5
billion by global regulators.

US and UK authorities fined RBS bank of $612 million for LIBOR manipulation. Deutsche bank, RBS
and Societe Generale were collectively fined upwards of $2 billion by EU regulatory authorities. Since
Barclays agreed to cooperate with EU regulators they were sparred to pay any dues. Citigroup was
fines with $425 million by US authorities after finding that bank was aware of Tom Hayes’ illicit
LIBOR rigging activities. Dutch bank settled charges by paying over $1 billion dues in total.

In April 2015, Deutsche bank agreed to pay $2.5 billion to US and EU authorities. Deutsche bank paid
$3.5 billion in total to all the global regulators which is more than double paid by any other penalized
banks.

Many of these banks came under scrutiny to manipulate the global currency market. In May 2015,
five banks- Citigroup, JP Morgan Chase, Barclays, Royal Bank of Scotland and UBS pleaded guilty of
charges manipulating the foreign exchange markets agreeing to pay dues amounting to total of $5
billion to US Justice department and other regulators. UBS was again pleaded guilty of LIBOR related
scam and agreed to pay additional $203 million in penalties.

Barclays CEO Bob Diamond and Rabobank CEO Piet Moerland were forced to leave the bank. In 2015
Deutsche were forced to fire seven employees under settlement. Over one hundred traders and
brokers were fired or suspended and 21 were charged. In July 2016, 3 Barclays traders received
prison sentences of between two to six years. New York judge sentenced two Rabobank employees
to 1-2 years in prison. In June, 2016 DOJ indicted two former Deutsche bank traders and revealed
that several others have pleaded guilty. In total DOJ charged sixteen people in connection with
LIBOR rigging scandal.

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 Issue Analysis
Suwansh Framework
Srivastava (190601031)

 Risk Novelty:
o The crisis has been categorised as exotic because it was a first of its kind of a situation.
Never before in the history of financial crisis, had there been a crisis of this level where
so many customers, regulators, & companies were affected.
o The timeline of the crisis from 2005-2009 when the scam went undetected, makes it
unobservable.
o The Libor system has been in place since long and therefore many people were aware of
the loopholes and rate manipulations that could be done. Hence, the crisis has been
categorised as known to science.
 Risk Severity:
o Libor is used to set interest rates on $350 trillion of dollars and euros of loans and other
obligations globally, that’s about $50,000 worth of financial instruments for every
person on Earth.
o The above statement reflects the true severity of the crisis. The scandal had far reaching
consequences whereby customers with products such as mortgages, loans, credit cards,
home loans, small business loans & many more were affected as Libor was the
underlying rate for all the products.
o Even though the crisis affected millions of people, it wasn’t deadly or uncontrollable.
Had the regulators stepped in at the right time on the basis of acquisitions throughout
2000-2010, it could’ve been stopped earlier.
o However, the crisis’ far reaching consequences makes it catastrophic. Hence, the
parameter has been placed in a grey area.
 Risk Fairness:
o Unknown to the general public, the risk was coerced upon them as they had no idea of
higher costs of borrowings, manipulations in the derivatives market & low financial
viability and health of banks after the GFC’07. It had unfair costs & benefits for a long
time from 2005 till at least 2009.

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 o The crisis also put the banks in good positions while affecting the customers without
their knowledge. This makes the crisis coerced.
 Risk Context:
o In terms of risk context, many banks as well as certain individuals clearly came
out as villains controlling the benchmark rate and trying to fool the public as well
as the regulators.
o Even after the crisis, the way many involved banks dealt with the public outrage
and authorities puts them in the shoes of the villains even more.
o The Libor being a crucial rate, new regulations & methods of setting benchmark
rates had to be brought in to deal with the crisis. This all made the Libor scandal
a very memorable crisis in the financial industry.

Non-Market Strategy Tool

 Frame:
• Apologising & accepting ramifications.
• Helping the regulators in the
investigation of the cartel.
• Going forward, better banking practices
through increased transparency and
customer service. • Press conferences and print media
• Social Media Sites
• The legal system in the country

• US Justice Department
• Regulators like Financial Services
Authority, UK & U.S. Commodities
Futures Trading Commission
• Credible rating agencies & print media
• External Auditors

o As the crisis unfolded, it was made clear that the banks were undoubtedly involved in
the events leading up to the situation. So instead of playing the blame game and
rebutting various opposition claims, banks should’ve apologised and came out clear with
their mistake.
o This is where it works in favour of Barclays as the bank was the first one to come out
with admission of misconduct. Barclays, following the crisis and resignation of its top
executives, pulled all ads as a form of apology.
o Following this, it rolled out a one-off print ad in the form of a letter from group chairman
Marcus Agius, stating that Barclays was "truly sorry" for those who had been "let down"
by the bank's actions.

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 o The bank’s cooperation with the relevant authorities to help in the investigation of the
cartel throughout the crisis and also agreement to pay $453 million to
settle manipulation charges brought by U.S. and U.K. bank regulators and law
enforcement officials, puts them in a good light. The cooperation with the authorities
also helped Barclays minimize the amount of damages they had to pay.
o In addition to the above responses, Barclays should’ve come out with a new marketing
campaign focusing on improving operations, transparency and customer service. The
campaign should have a focus towards improving bank’s culture with a focus on being
ethical to achieve excellency.
 Alliance:
o Alliance with the regulatory as well as judiciary authorities helped the bank minimize the
amount of damages and fine it had to occur. Such alliances also helped the bank in
improving its image in the public domain as Barclays consistently helped the authorities
which showed it was committed to improving its operations.
o In addition, Barclays allied with CTFC to strengthen its compliance and internal control
systems. Meanwhile, Barclays should’ve partnered with other involved banks promote
CSR campaigns regarding customer education and safety.
o Barclays should’ve partnered with print media to promote its campaign about improving
bank’s operations and also apologize & issue formal communication regarding the crisis
so that it reaches all its stakeholders.
o While launching the campaign, another alliance that could work in the favour of Barclays
would be with rating agencies to highlight the greater importance placed on improving
bank’s operations in the future. External auditors should be called in to provide greater
credibility to the operations of the bank.
 Arena:
o As a huge financial institution, Barclays made use of various press conferences and print
media to show its cooperation with various regulators and its acceptance of the
consequences.
o Since the media house like New York Times and Wall Street Journal are the first ones to
report such crisis, there involvement in improving the face of the bank going forward
could prove to be useful for Barclays.
o Additionally, Barclays could’ve made use of website to show the new face of the bank,
Antony Jenkins, who replaced Bob Diamond as the CEO. By giving a new face and putting
customer at the forefront of its products and services, Barclays could’ve moved forward
with a stronger footing.

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 Other Banks Involvement

 In certain documents revealed in court proceedings, Royal Bank of Scotland (RBS) trader Tan
Chai told his colleagues that his bank could change global interest rates and that LIBOR
manipulation in London had become a cartel.
 One such conversation transcript between Mohideen, head of yen products in Singapore, shows
how he asked to fix LIBOR rates with other traders. In early 2013, U.S. and UK
authorities fined RBS $612 million for rate rigging.

 Barclays Bank, along with JPMorgan Chase, Citicorp and RBS all pleaded guilty to US
Department of Justice charges of conspiring to manipulate the massive currency markets to up
their own profits.
 Switzerland’s UBS meanwhile pleaded guilty to violating a prior settlement of charges for rigging
the LIBOR interest rates.
 Bank of America along with 5 other major banks was levied fines by the US Federal Reserve in
forex rigging case. The total fines to these 6 major global banks amounted to nearly $US6bn.

Way Forward

One potential upside of the crisis was that it brought to light the problems associated with general
structure of reference rates. Following the crisis, British Financial Conduct Authority (FCA) stripped
the British Bankers Association (BBA) of the LIBOR supervision responsibility and gave it to ICE
Benchmark Association (IBA). IBA is a subsidiary of Intercontinental Exchange (ICE) which is a U.S.
based exchange operator. The LIBOR has been now renamed as ICE LIBOR, which will be supported
by FCA till 2021. The New York Federal Reserve has launched a possible LIBOR replacement rate
known as the Secured Overnight Financing Rate (SOFR).

A recommendation moving forward would be imposing harsher and stricter penalties (criminal
sanctions) on involvement in rate manipulation and rate rigging. Since LIBOR will be in circulation for
quite some time with many financial assets being dependent on it. Such penalties will discourage any
future misconducts and unethical practices. Regulations should be put in place to ensure greater
accountability on banks operations and control systems. In relation to this, since 2013 individual
recommendation that comes from banks is embargoed for three months to reduce the possibility of
any false submissions. Also, it is now mandatory for banks to keep a person responsible for LIBOR
handling within the bank. The banks are required to keep records so they can be audited by the
regulators if and when the need arises.

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 References

• https://www.bbc.com/news/business-22382932
• https://www.bbc.com/news/business-18671255
• https://www.theguardian.com/business/2012/jul/02/barclays-libor-scandal-change-banking-
culture
• https://www.cfr.org/backgrounder/understanding-libor-scandal
• https://www.investopedia.com/terms/l/libor-scandal.asp#:~:text=Among%20the%20financial
%20institutions%20that,the%20Royal%20Bank%20of%20Scotland .
• https://www.abc.net.au/news/2015-05-21/us-britain-fine-top-banks-nearly-6-bn-for-forex-libor-
abuses/6485510
• https://en.wikipedia.org/wiki/Libor_scandal
• https://www.bbc.com/news/business-50107320

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