How Much Did Barclays Make From Manipulating Libor?
No doubt at some point a full calculation will be forthcoming. It is important to remember that many banks are involved in the scandal, and that for every long derivative there’s a short, so there were winners and losers and the sums are all mixed up. It may well be that just as Bank X’s trader was pleading with Barclays for a low fixing, Bank Y was pleading with Bank Z for a high one because they had an opposite position. If each bank shaded by the same amount in the opposite direction, their efforts at manipulation came to naught.
Now, remember that Barclays was sometimes manipulating Libor for someone else — meaning they weren’t directly profiting unless that someone else was in their own bank, on the other side of what proved to be a porous “Chinese Wall”. This seems to be the case in some of the emails, but not in others. Let’s say in a certain case it was 3-month Libor fix on GBP 30bn (one of the notionals quoted), and they could move the fix 0.5bps by getting Barclays to submit a phony quote (the submitted quote might have been shaded up/down more than that, but this would have been just one of many banks in an average with high/low quotes not counted) . I think that’s a stretch, but in the more volatile times maybe it was that much.
So the math is £30,000,000,000 x 0.00005 x 0.25 duration = £375,000.
A trader usually takes home 10% of profits on his book, so that turns into £37,500 for Mr. Big. Not bad for a day’s hard work: a bottle of Bollinger and a few lapdances seems about right as a reward for the ‘submitter’ who wasn’t taking any risk (so he thought). He might have even been hurting other individuals at Barclays. The individuals involved were totally self-centered, and didn’t give a fig about the implications on the other market participants (though they knew that their gain came right out of someone else’s pocket) or the bank itself.
Now, if Barclays had, say, a few of these mis-matched fixings a week, perhaps not of this size, they might have been making $500k per week as a result of manipulation. Multiply by 52 and you get to $26 million per year. This is extra icing on the cake for what should have been a slightly noisy, but overall hedged part of the book, making money on client flows and prop trading. In aggregate they siphoned this off from thousands of other market participants, but the main losers were probably other large banks and highly-leveraged hedge funds. Of course others in the $700 trillion derivatives market got lucky and gained. The desk would have clearly sought to portray this additional income as skill, and I doubt that anyone more than a level above the desk head would have known if there was no whistleblower. And remember, if all the banks were doing it, then they were all just mainly stealing from themselves on different days — imagine that, careers ruined, huge fines levied, bonuses clawed back, maybe jail sentences to be handed down — all for a net gain of zero! Deliciously ironic.
(This all refers to the time before the “request” of the BoE after which Libor was brought down; Barclays didn’t gain directly as a result, but it punished anyone who had interest rate hedges that paid fixed and received floating; this is quite common among corporate bond issuers).
For those who haven’t seen the actual evidence, here are some illustrative examples:
- Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the libor fixing at 5.39 for the next few days. It would really help. We do not want it to fix any higher than that. Tks a lot. September 13, 2006, senior trader in New York to submitter
- October 13, 2006:
Senior euro swaps trader: “I have a huge fixing on Monday … something like 30bn 1m fixing … and I would like it to be very very very high ….. Can you do something to help? I know a big clearer will be against us … and don’t want to lose money on that one.”
Euribor submitter forwarded the request to another Euribor submitter, advising: “We always try and do our best to help out. …. “
- On 26 October 2006, an external trader made a request for a lower three month US dollar LIBOR submission. The external trader stated in an email to Trader G at Barclays “If it comes in unchanged I’m a dead man”. Trader G responded that he would “have a chat”. Barclays’ submission on that day for three month US dollar LIBOR was half a basis point lower than the day before, rather than being unchanged. The external trader thanked Trader G for Barclays’ LIBOR submission later that day: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger”.
6 Responses to “How Much Did Barclays Make From Manipulating Libor?”
My bet is that the fines were calculated to levy a disgorgement on Barclays, and the calculations here seem to be ballpark correct to my non-professional eye. If so, it offers an insight into the punitive regime regulators are prepared to impose on offenders who later cooperate with investigators.
I guess it's quite enough! Barclays is very well known to the people so I think it's able to make huge from the entire market and for what so many people are still interested in it. However, thanks for discussing the point from what I have got few latest info about Barclays.
That is a huge amount from your math above, I would think that this could be avoided especially in the more volatile times as you said.
Thanks for the post man. I have enjoyed reading your post. Lies, damn lies and LIBOR were a great stuff to read. I have become a great fan of yours. Well done blogger. Keep posting. Keep up the good work.