LIBOR Rate Manipulation: What it Means for Investors

by Jason Jenkins, Investment U Research
Tuesday, July 17, 2012

The Barclays LIBOR case has brought to light LIBOR rate manipulation on a massive scale. What does this mean for your investments?

In case you’re not up on your major British multinational banking and financial services conglomerates, Barclays is headquartered in London and was founded in the late seventeenth century.

It has operations in over 50 countries and territories spanning across five continents. We’re talking upwards of 48 million customers. At the end of last year, it had a market capitalization of approximately $34 billion and was the twenty-second largest company listed on the London Stock Exchange.

So yeah, it’s a big deal…

LIBOR Rate Manipulation

Bear with me. The concept of the LIBOR rate is both simple and convoluted at the same time.

It’s almost amazing that it has a place in the world of high finance.

LIBOR stands for the London Interbank Offered Rate. This is the rate banks are charged to borrow money from each other.

Here’s how it works. Thomas Reuters, on behalf of the British Bankers Association (BBA), goes around daily to a bunch of BBA member banks asking how much it would cost to borrow money today from one another. The rate submitted isn’t based on anything concrete, but an estimate of what they believe they would have to pay. Take out the highs and lows, average the remainder, and you have your LIBOR for that day. Wow, that’s based on some heavy math and concrete data.

Now what does all this merry ole England stuff have to do with you?

Well, chances are you’ll never be in the market for an interbank loan in the U.K. – or at least I don’t think so. But, LIBOR isn’t just one rate with one purpose. Different LIBORs are calculated over different time horizons and in many currencies. The rate is used to price somewhere around $800 trillion of investment vehicles worldwide, including adjustable rate mortgages and student loans.

So what would be the reason to manipulate the LIBOR rate?

There’s been a lot of talk over media outlets that Barclays understated their LIBOR during the financial crisis. If they lowered rates, isn’t this good for consumers? It may have been. But that doesn’t look at the entire horizon of the story.

If you listen to the Regulators at the Commodity Futures Trading Commission (CFTC), the rate manipulation went in both directions. The rate submitted depended upon what type of contract the traders at Barclays were trying to make profitable. This has been documented as going back as far as 2005. That was at the height of market dealing and gambling.

It wasn’t till after the market hit bottom that there was pressure to keep LIBOR down. The lower your borrowing costs, the stronger the bank looked, and vice versa. Remember, the submissions are public record. This information would have easily been factored into pricing its equity.

And then consider that a low interest rate is good for mortgages and car loans because you pay less interest. However, if you’re trying to save in a LIBOR based investment that’s been manipulated lower, you may have been cheated out of return.

And it may have devastated your community. Many cities, pension funds and transportation systems had invested in vehicles based on LIBOR calculations in the mid 2000s. Those entities would have brought in less income if LIBOR was manipulated downwards.

It begs the question, “What cuts in your city or municipality may not have needed to be made?”

That’s why the city of Baltimore is leading a legal battle against banks, such as Barclays, that determine the LIBOR rate. It’s claiming the city’s budget cuts and layoffs were aggravated by the bankers’ LIBOR rate manipulation, which was linked to hundreds of millions of dollars the city had borrowed.

Will Justice Be Served This Time Around? (Probably Not)

Barclays got hit with about $450 million in fines from regulators both in the United States and the United Kingdom.

What may be even more devastating is another black eye for the banking industry. This story just doesn’t have legs across the pond. The initial findings are suggesting that some other global big time players such as Citibank (NYSE: C), J.P. Morgan (NYSE: JPM), HSBC(NYSE: HBC) and Lloyd’s Banking Group (NYSE: LYG) may have had their hands in the LIBOR cookie jar, too.

The bad press and fines may affect some bottom lines and the industry as a whole going forward – granted it hasn’t done much yet. But we may never fully realize the effect this had on unemployment rates and local economies around the United States and the world.

Good Investing,

Jason

http://www.investmentu.com/2012/July/libor-rate-manipulation.html

The largest banking corruption scandal in history - The Libor Banking Scandal

Published on 4 Jul 2012 by 2012sprint

Watch this video to understand the largest banking corruption scandal in history. These large banks have stolen money from every single human on the planet. Not one person was left out. Not even YOU! Now that it is exposed there is no going back. We will ALL support the "NO MORE BAILOUT" mantra...

This one will not go away. It was not planned to go away like other "banking scandals". This one will build and build and build until it is known by every man, woman and child on the planet. This is the exposure that will END the bad guys reign.

I've said it over and over: Timing, timing, timing.

The evil vampire banksters have been stabbed in the heart with various stakes in the past few months but this one is by far the largest. (note: the last one will be made of SILVER so be ready for it!)

http://www.roadtoroota.com/public/570.cfm?awt_l=Hj.JM&awt_m=3aquxoPW7V4C85B

Know this: All is going as planned for the Good Guys.

May the Road you choose be the Right Road.

Bix Weir
www.RoadtoRoota.com
--------------------------------------------------------------------------------­----------------------
VIDEO:"Viewpoint" host Eliot Spitzer, Matt Taibbi, Rolling Stone contributing editor, and Dennis Kelleher, president and CEO of Better Markets, analyze the Libor interest rate--rigging scandal engulfing the banking industry.

Barclays CEO Bob Diamond recently resigned after the bank was fined $453 million for its part in the scandal, which involved manipulating the London Interbank Offered Rate (Libor), a key global benchmark for interest rates, by essentially "faking their credit scores," according to Taibbi. And as Taibbi explains, Barclays couldn't have acted alone.

"It can't just be Barclays and the Royal Bank of Scotland. In fact, it can't even be four banks or even five banks," he says. "Really, in the end it's probably going to come out that it's going to be all of them ... involved in this. And that's what's critical for people to understand: that this is a cartel-style corruption."

Kelleher argues that the Libor scandal is proof that the financial industry "is corrupt and rotten to its core." "The same executives [using] the same business model that crashed the entire financial system in '08 are still running these banks," he says.

'The mob learned from Wall Street': Eliot Spitzer on the 'cartel-style corruption' behind Libor scam
July 3, 2012
http://current.com/shows/viewpoint/videos/the-mob-learned-from-wall-street-el...

The Biggest Financial Scam In World History
http://www.infowars.com/the-biggest-financial-scam-in-world-history/

Barclays Brawl: 'Elite manipulated market, UK laws only give slap on wrist'
http://www.youtube.com/watch?v=mSWUowKuSzI

Keiser Technique for financial criminals
http://www.youtube.com/watch?v=tcbtHeQSrmw&list=UUpwvZwUam-
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Some norwegian links:
http://e24.no/boers-og-finans/jeg-elsker-barclays/20250028
http://e24.no/boers-og-finans/barclays-hevder-bank-of-england-oppmuntret-til-...
http://e24.no/moody-s-nedgraderer-barclays/20250282
http://www.dn.no/forsiden/utenriks/article2429409.ece
http://www.dn.no/forsiden/borsMarked/article2429806.ece
http://www.dagbladet.no/2012/07/05/kultur/religion/vatikanet/paven/cern/22432...

The Qataris profiting handsomely for taking the risk

Qataris bank £615m profit on rescue of Barclays
One of Barclays' Middle Eastern saviours has bagged a £615m cash profit from its £1.75bn gamble on the bank's recovery last year.

By Philip Aldrick, Banking Editor
Published: 8:51PM BST 20 Oct 2009

Comments 1 | Comment on this article


Towering profit: Qatar's sovereign wealth fund has banked £615m in a year from its investment in Barclays Photo: Ian Jones Qatar Holdings, the country's sovereign wealth fund, on Tuesday cashed in half of the £1.5bn of warrants it received in return for supporting last October's £7bn rescue fund-raising to keep the lender out of UK Government hands.

The warrants, which Qatar exercised at 197.775p a share, were sold in the market at 360p, realising a £615m cash profit for the Middle Eastern investor.


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UKFI rules out quick sale of bank sharesQatar is sitting on a £615m paper profit for the other half of the warrants it holds and a further £690m profit on the £500m of shares acquired at 153.276p. It has also been paid £175m in interest for the £1.25bn of reserve capital instruments that formed the bulk of the deal.

In total, Qatar has made a £2.14bn cash and paper profit on its £1.75bn investment in just one year.

Qatar was one of three Middle Eastern investors that came to Barclays' rescue after UK institutions shunned management attempts to raise capital when Lloyds Banking Group and Royal Bank of Scotland were part-nationalised last year. Barclays stayed out of state hands, but it had to offer highly generous terms to the three investors.

Between them, they have made a cash and paper profit of £5.4bn on a combined £5.3bn investment in just one year. His Highness Sheikh Mansour bin Zayed al-Nahyan, a member of the Abu Dhabi royal family, sold £2bn of his investment for a £1.45bn profit in June but has retained £1.5bn of warrants that are currently £1.2bn in profit.

Challenger, a vehicle owned by the Qatari royal family, is sitting on a £410m paper profit and has earned £25m in interest on its investment.

Credit Suisse placed Qatar's shares at an average of 360p largely with UK institutions.

Analysts pointed out that Barclays' shareholders were offered the chance to support the bank but declined and are now paying more than twice as much for the stock.

They were also given the opportunity at the time of the rescue refinancing to buy £1.5bn of manadatory convertible notes that switched into shares in June at 153.276p, under the same terms as the Middle Eastern investors. Only £1.25bn was taken up.

"They missed an opportunity and the Qataris are profiting handsomely for taking the risk," one analyst said

Qatar stressed that it remained "a long-term strategic shareholder in Barclays". It continues to be the bank's largest shareholder with a 7.1pc stake, diluted from 7.4pc due to the issue of 379m new shares as a result of the warrants being exercised.

John Varley, Barclays chief executive said the placing "will further broaden the base of our share register" and added: "Qatar is our largest shareholder and a key partner of the Barclays group."

The deal will also improve Barclays' core tier one ratio, the key measure of financial strength, from 8.8pc in June to roughly 8.95pc. The boost came about because Qatar had to pay the bank £750m for the new shares before selling them at a profit.

Bringing the Middle East investors on to the share register was highly controversial last year. The price paid was significantly more than what it would have cost to raise similar funds from the Government and the speed of the deal meant shareholders were not given first refusal on the deal, as is best practice.

However, the strategy of remaining independent has proved a success. Barclays shares have recovered from around 200p to 363¾p, down 18.3p yesterday due to the dilutive effect of the deal, while RBS shares have fallen from 66p to 46.58p and Lloyds from around 200p to 91.35p in the same period.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6390133/Qataris-bank-615m-profit-on-rescue-of-Barclays.html

'Financial shares to rally 20pc'

'Financial shares to rally 20pc'
Jupiter's well-respected financials fund manager Philip Gibbs says the sector should enjoy a further 20pc gain before the current rally peters out.

By Matt Goodburn
Published: 3:24PM BST 01 Oct 2009

Mr Gibbs, the only manager to have been AAA-rated by Citywire for the entire ratings coverage, was also optimistic about the prospects for equities as a whole over the next few months. Mr Gibbs says he believes corporate earnings for the financials sector will be ''very much beating expectations'' after the current round of trading updates are released.

"The run could go a very long way. We are down over 50pc in global financials and the numbers are compelling. I think if the sector returns to more normal valuations it will stage a more significant rally of more than 20pc and individual stocks could do very well.''

Mr Gibbs' top fund holding is Barclays, which comprises 7pc of his £1.3bn Jupiter Financial Opportunities fund. He picked the bank as ''a winner from the credit crunch'' compared to rivals Lloyds and Royal Bank of Scotland: ''Lloyds is a microcosm of the sector. It is a very leveraged play on the UK consumer, but still has some very horrible problems, especially in commercial property. It is still undercapitalised and wrestling with the issue of paying a huge premium to the Government.
I prefer HSBC and Barclays.''

According to fund statisticians Lipper, Jupiter Financial Opportunities has posted a total return of 857pc since launch in June 1997 to the end of August, making it by far the most successful UK unit trust over the period, with an annualised return of 19.8pc.

http://www.telegraph.co.uk/finance/personalfinance/investing/6251200/Financial-shares-to-rally-20pc.html

Investment Banking Buoys HSBC and Barclays

Investment Banking Buoys HSBC and Barclays


By JULIA WERDIGIER
Published: August 3, 2009

LONDON — HSBC Holdings and Barclays reported robust first-half profits Monday based largely on the performance of their investment-banking businesses, along with their Wall Street peers. Yet the banks also set aside a combined $22 billion to cover potentially bad debts as recession and high unemployment lead to more retail loans going sour.

The two banks, among the largest in Britain, were the first of a group of European banks, including UBS and Royal Bank of Scotland, to report earnings this week. Some analysts predict that the industry will continue to struggle because fewer clients can repay their debts as the global downturn continues.

HSBC’s profit fell 57 percent from a year ago after the bank set aside $13.9 billion in credit risk provisions and said the timing and scale of a “recovery in the wider economy remains highly uncertain.” Profit at Barclays increased 10 percent after earnings at its investment banking unit almost doubled but reserves against anticipated loan losses, also called impairment charges, reached £4.6 billion, or $7.7 billion.

“The underlying trend is rising bad debts and there are still at least one or two more quarters to come,” said Julian Chillingworth, chief investment officer at Rathbone in London.

HSBC and Barclays joined banks like Credit Suisse and JPMorgan Chase in benefiting from a strong performance of their investment-banking units even as loan loss provisions climbed. Demand for investment banking services rose because more companies are seeking to sell shares and bonds to raise capital.

As it has among Wall Street banks, a rift is emerging in Europe between those banks that remained relatively unscathed during the financial crisis and can now grow and benefit from their investment banking services and those that accepted government funds and needed to scale back riskier operations.

HSBC and Barclays could expand their investment banking operations while rivals like Royal Bank of Scotland and Lloyds, which accepted government funds, are struggling to cut costs and recover from huge losses. Rather than accept government assistance, HSBC conducted a rights offer and Barclays tapped foreign investors to raise capital.

Shares in HSBC gained about 5 percent in London on Monday and shares in Barclays jumped 7 percent. The share price of Barclays has more than doubled since the beginning of this year, while HSBC stock is down about 5 percent amid concern about rising loan-loss provisions and its struggling mortgage lending business in the United States.

Rising loan losses among European banks continue to spook investors. Deutsche Bank’s loan provisions of 1 billion euros, or $1.4 billion, for the second quarter sent the company’s shares lower even though the bank’s net income rose and revenue from sales and trading at its investment bank unit more than doubled.

Barclays said profit rose to £1.89 billion in the first half of this year from £1.72 billion. Impairment charges increased 86 percent to £4.6 billion and pretax profit at its British retail business dropped 61 percent. At Barclays Capital, its investment-banking unit, earnings rose to £1.05 billion from £524 million.

Barclays is benefiting from an expansion into investment banking services; it bought Lehman Brothers’ American businesses and has been hiring senior bankers in Europe and Asia this year.

Robert E. Diamond Jr., president of Barclays, said Barclays Capital’s expansion is about two-thirds done “but more is to do in Asia.” He expects income from the cash-equities and advisory business to continue to grow and said the pipeline for financing, fixed-income and risk management services is “very big.”

Barclays, which said it planned to resume paying dividends before the end of this year, struck a note of caution Monday, predicting that loan losses will continue to go hand-in-hand with unemployment rates. “We expect the remainder of 2009 to be challenging,” John Varley, the bank’s chief executive, said in a statement. “We expect credit-market losses to be lower than in the first half but impairment trends to be consistent with those experienced over the first half.”

Stephen Green, HSBC’s chairman, was more optimistic when he said that “it may be that we have passed, or are about to pass, the bottom of the cycle in the financial markets.”


http://www.nytimes.com/2009/08/04/business/global/04banks.html?ref=business

Survivors of crisis find a silver lining

From The TimesApril 15, 2009

Survivors of crisis find a silver lining

David Wighton: Business editor's commentary

For a moment, it looked just like the good old days. Goldman Sachs' profits soar way above forecasts to $1.8billion in the first quarter as it plans for a 20 per cent pay rise for staff. Crisis, what crisis?

Except, of course, the crisis has had a big impact on Goldman. It is just that the impact on Goldman - and rivals such as Barclays Capital - has not been all bad.

The reason that Goldman's huge fixed income, currency and commodities arm generated record revenues of $6.56 billion was not that its customers did record business, although volumes were healthy enough.

It was because half of its competitors have blown themselves up and many of the others are wandering around in a daze. As a result, customers are having to pay up to get trades done.

The spread between the buying and selling prices for everything from sterling to silver has widened dramatically, fattening up Goldman's margins a treat.

These trading profits absorbed continued losses in credit products, including about $800 million before hedges on commercial mortgage loans and securities.

Elsewhere things were not so pretty. Equities trading, the advisory businesses and asset management were all down and there were further losses from property and other investments.

The returns to shareholders have been diluted by the big increase in Goldman's capital, which is now being expanded by another $5billion, which may be used to pay off the $10 billion owed to the US Government.

But Goldman still managed to generate a return on equity of 14 per cent.

The speed with which the underlying business of the surviving investment banks seems to be bouncing back must make companies in other stricken sectors look on with incredulity.

Boston Consulting Group has constructed a “bull” case that has global investment banking net revenues before writedowns reaching $374billion next year.

That is 15 per cent higher than the record level of 2007. Even its “bear” case of $258billion is not far off the level of 2006. Returns will not be as high, because of lower leverage, but then the cake will be shared out between fewer mouths.

The Goldman figures looked particularly encouraging for Barclays.

Thanks partly to its rescue of Lehman Brothers' US business last year, Barclays Capital is strong in all those areas where Goldman reported good results - particularly debt, currencies and commodities - and smaller in those areas that struggled.

London investors took note and Barclays shares jumped another 10per cent to 195.5p yesterday, four times their low in January.

A lot could still go wrong. But the history of previous banking crises shows that the survivors not only live but live well. Those that double up at the bottom, like Barclays, can live very well indeed.

http://www.timesonline.co.uk/tol/comment/columnists/article6094574.ece


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