Reading through reports from regulatory bodies rarely excites anyone. However, now that these reports started to include the chats between traders that likens them to teenagers planning to sneak out at night without their parents' permission, there is plenty to keep a reader's attention. Below are a few of the best examples of incriminating conversations between traders of recent banking scandals, lightly edited for readability.
The latest worst thing to type ever
Traders at the Royal Bank of Scotland (NYSE:RBS) from offices around the world attempted to manipulate LIBOR, for which the bank will be paying a $325 million fine to the CFTC. Here are some of the chats between traders:
Aug. 20, 2007:
Senior Yen Trader: This LIBOR setting is getting nuts.
Bank A Trader: I'm puzzled as to why three-month LIBOR fixing is not coming off after the Fed action.
Senior Yen Trader: ... the JPY LIBOR is a cartel now... it's just amazing how LIBOR fixing can make you that much money... it's a cartel now in London.
May 14, 2009:
Swiss Franc Trader: Please, can we get a super high three-month and a super low six-month...PRETTY PLEASE?
Primary Submitter: 41 & 51.
Swiss Franc Trader: If you did that, I would love you forever.
Primary Submitter: 41 & 51, then...
Swiss FrancTrader: If you did that, I would come over there and make love to you, your choice.
Primary Submitter: 41+51, it is.
Swiss Franc Trader: Thought so.
Primary Submitter: So shallow.
When the bank was under investigation, the traders moved to telephone conversations:
November 24, 2010:
Senior Yen Trader: Yeah, how are you?
Primary Submitter: I'm pretty good, sir. Very good. We're just not, we're not allowed to have those conversations on [instant messages].
Senior Yen Trader: Oh, sorry about that. I didn't know.
Primary Submitter: (laughter)
Senior Yen Trader: (laughter) Oh, because of the BBA [British Bankers Association] thing?
Primary Submitter: Yes, exactly.
Senior Yen Trader: Ah, OK, OK.
Primary Submitter: So, yeah, leave it with me, and, uh, it won't be a problem.
Senior Yen Trader: OK, great.
Not the first
RBS was just the latest to be fined for attempted LIBOR manipulation. Last year, Barclays (NYSE:BCS) had to pay $450 million in fines. The famous quote from that bank was the response to a low LIBOR submission request, "Done... for you, big boy."
Then, in December, the report detailing UBS's (NYSE:UBS) $700 million fine to the CFTC, with a total fine of $1.5 billion across all regulatory agencies, offered plenty more examples of what not to type:
Broker to UBS derivatives trader: Mate, you're getting bloody good at this LIBOR game... think of me when you're on your yacht in Monaco, won't you?
And again, even after the investigation started at UBS, traders still attempted to manipulate rates, just with a touch of caution:
Euro Trader 1: Low 6s, high 12s, please.
Euro Trader-Submitter 1: Noted.
Rates Manager A: JUST BE CAREFUL, DUDE.
Euro Trader-Submitter 1: Yeah, [Sterling Trader-Submitter] gave me your call update. I agree we shouldn't have been talking about putting fixings for our positions on public chat.
While these reports now might make good reading, with the fascinating dialogue giving color to the usual gray tones of banking regulation, it shows just widespread and accepted such behavior was. Additionally, investors in these banks shoulder the costs of these fines, not to mention the possible costs to society of a manipulated LIBOR. One estimate of losses for all states and localities due to LIBOR setting is $6 billion.
Who else might contribute to these scripts? Deutsche Bank (NYSE:DB) and Citigroup (NYSE:C) both are under investigation by regulators, but the Financial Times reports that neither is in settlement talks and they are "not even close to such discussions." Deutsche just suspended five traders while investigating LIBOR manipulation, while Citi took a $50 million loss last year after unwinding trades made by two traders who left during its own investigation.
But ever since the first fine related to LIBOR was delivered last year, the financial sector has outperformed the market, up about 25% since last June. The fines levied aren't enough to affect investors' belief in the future profits of a recovering bullish economy.