Barclays PLC
(
BCS
) has been levied a penalty of $450 million for rigging the London
Interbank Offered Rate (LIBOR) during 2005-2009. The agencies
involved in the probe include the U.S. Securities and Exchange
Commission (SEC), the U.S. Department of Justice (DoJ), the
Commodity Futures Trading Commission (CFTC), the UK Financial
Services Authority and the Japanese Financial Supervisory
Agency.
According to these regulatory authorities, big banks such
as Barclays,
JPMorgan Chase & Co.
(
JPM
),
HSBC Holdings plc
(
HBC
),
Citigroup, Inc.
(
C
) and
Bank of America Corporation
(
BAC
) manipulated interest benchmarks like LIBOR and EURIBOR for
financial gains. LIBOR is the rate at which banks lend to each
other. This rate is used as a reference rate for financial
products all over the world.
The British Bankers' Association (BBA) sets LIBOR on a daily
basis for short-term borrowing in 10 currencies. Banks quote rates
at which it will be feasible for these to borrow. The four highest
and lowest reported rates are removed and the remaining rates
are averaged to set the LIBOR rate.
Now, Barclays has been charged of presenting wrong LIBOR rates
to favor its interest rate derivative traders, who sought to
benefit from bank's favorable trading position. This was done by
demolishing the so-called information sharing restrictive barrier
between its treasury departments, entrusted with rate sets and the
trading units.
Moreover, Barclays submitted dubious EURIBOR rates in order to
influence rate settings by other banks. At the peak of the economic
crisis, the company resorted to reporting fake rates to avoid
potential media backlash. Such malpractices have put around $350
trillion worth of financial products including complex derivatives,
student loans, credit cards and mortgages at stake. In addition,
consumers have been subject to paying inappropriate interest on
their loans.
Regulatory authorities have come down hard on such unwarranted
activities of the bank. Barclays will pay a record $200 million
fine to CFTC. The company will further shell out $160 million and
$92.8 million in penalties to the DoJ and UK Financial Services
Authority, respectively.
The regulatory bodies are looking into the affairs of other
large banks that have already received subpoenas from these
regulatory authorities. Regulatory bodies aim at a thorough
investigation followed by an apt judgment, in order to bring the
wrongdoers to justice and mitigate the occurrences of such
incidences in the future.
Conclusion
Barclays should be praised for standing up and taking
responsibility for its misconduct by providing extensive
cooperation in the probe. Though the bank has to pay a hefty fine,
the amount remains comparatively lesser than the profits it has
made over the period by manipulating interest rates. The company's
actions have put the integrity of a widely used benchmark interest
rate in danger and left the other market participants in a
mess.
Barclays' credentials will suffer immensely because of its
self-indulgent acts. Though the senior management has decided to
forgo its bonus for the year, we see this measure as too little too
late.
Currently, Barclays retains a Zacks #3 Rank, which translates
into a short-term Hold rating.
BANK OF AMER CP (BAC): Free Stock Analysis
Report
BARCLAY PLC-ADR (BCS): Free Stock Analysis
Report
CITIGROUP INC (C): Free Stock Analysis Report
HSBC HOLDINGS (HBC): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
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