in the back
Knight’s move at the BBA
Libor rigging, Issue 1475
angela-knight.jpg
Angela Knight, who as chief executive of the BBA prepared a ‘strictly confidential’ note recommending ‘coordinated action by a large number of panel banks’
EVIDENCE obtained by the Eye shows the complicity of the authorities and major banks’ senior managers in rigging the Libor inter-bank borrowing benchmark, for which they escaped scot-free while five junior bankers were jailed in 2015 and 2016. With scapegoats thus found, meaningful reform of banking was avoided.

Back in April 2008, the British Bankers’ Association (BBA), which supervised the daily benchmark, called a meeting under its then chief executive, former Tory Treasury minister Angela Knight. In the teeth of the credit crunch, it was common knowledge that banks were “low-balling” the rates they submitted to make themselves look more credit-worthy.

In a “strictly confidential” note prepared for a BBA board meeting on 16 April – chaired by HSBC’s Stephen Green and comprising senior figures from Lloyds (in the person of ex-CEO Eric Daniels), Deutsche Bank, HSBC, RBS and other banks – Knight recommended: “Coordinated action by a large number of panel banks [ie those that submitted rates], directed from the most senior level… If we can orchestrate coordinated movement, no single bank need be out of line with the rest of the contributors.” Over the following two days, submitted Libor rates duly rose to more realistic levels.

Sizeable rigging
This evidence of sizeable rigging of Libor rates, by around 0.2 percentage points (or 20 basis points in the jargon), was conveniently left out of the trials of bankers accused of far smaller adjustments to suit their trading positions. And in legal action against the banks themselves, both the BBA and those banks have repeatedly denied the extent of their own roles in the rigging.

In civil proceedings in the high court in recent months, the BBA has claimed that Knight’s “recommendation” was not acted on. Lloyds’ counsel Richard Handyside QC, in a statement attested to by the bank’s (since retired) head of markets James Garvey, denied the increases were “the result of any anti-competitive agreement or concerted practice”.

‘Come to the party’
Their version of events is, however, contradicted by transcripts of phone calls seen by the Eye from sources close to regulatory investigations. In one, the morning after the BBA meeting, bankers from HSBC and Lloyds discuss coordinating their Libor submissions. Says the HSBC man, proposing double-digit basis point adjustments: “It would be nice if somebody else would come to the party.”

The pair then discuss the likely fallout from rates being seen to move suddenly and the prospect of the BBA denying any involvement. The HSBC banker’s view on the matter was clear. “I read the board meeting paper. I briefed our boss [an unknown but therefore very senior HSBC banker] on the board paper,” he says. “The whole problem started with Angela Knight putting the board a [sic] resolution up saying the dollar Libor fixings were too low, people had complained and you know we need to do something about it so… they can’t issue a denial, it was fucking item 4 on the board’s agenda, ‘US dollar Libor fixings’.”

A subsequent call confirmed the Lloyds trader’s intentions to hike his Libor submissions by more than he originally intended to suit the plan. Over the next two days, rates duly rose drastically – exactly as the BBA had wanted.

Major Libor-fiddlers
Yet in the landmark trial of UBS and Citigroup trader Tom Hayes (currently serving an 11-year sentence), the BBA maintained that adjusting Libor even by the smallest margin would break the rules. Its former head of Libor supervision, John Ewan, even claimed the first he’d heard of any manipulation was in 2012 (Eye 1467).

In light of concerns over his and others’ evidence – notably the Serious Fraud Office’s “expert” witness who wasn’t (Eye 1466), Hayes has mounted a comprehensive appeal to the Criminal Cases Review Commission. The critical question is whether his conduct was dishonest, which involves considering what the authorities and the banks’ senior managers thought acceptable or not. With the news that they were themselves major Libor-fiddlers, it becomes ever clearer that Hayes’s and other juries were presented with a thoroughly misleading picture of what was going on in the boardrooms of the supervisors and the banks themselves.

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