Libor trial: moving rates for profits was accepted, court hears

Rates division head of funding told regulators he "could see nothing wrong" with setting Libor submissions at most profitable point for UBS

UBS

Lawyers for former UBS and Citi trader Tom Hayes brought evidence today (July 17) that managers at UBS knew and approved of the bank's derivatives traders influencing its Libor submissions, as they closed the case for the defence. Hayes faces eight charges of conspiracy to defraud and has pleaded not guilty.

The former head of funding for UBS's rates division, Panagiotis Koutsogiannis, refused to appear as a witness for the defence; since he lives outside the UK, he could not be compelled to appear. But the defence presented a transcript of an interview with investigators from the UK Financial Conduct Authority and the US Commodity Futures Trading Commission – also involved in investigating Libor-rigging – in 2013.

Koutsogiannis said he was present at a management meeting on Libor submission in August 2007. He said he was not aware of traders making specific requests to the bank's Libor submitters from 2007 onwards, and that senior management had not specifically instructed them to do so. But when the interbank cash market was frozen, he said, there was nothing wrong with the practice.

"The [BBA submission] definition says cash – but there was no cash being traded. Our instruction was to share derivatives market information as market colour, not UBS's own derivatives position information," he said.

"The point of the meeting in August 2007 was to exchange as much derivatives information as possible, because there were no cash transactions. Some submitters were asking the derivatives side for their reset risk. I saw nothing wrong with it – picking a number that would benefit the bank's profit and loss."

I felt a sense of injustice... I was burning with rage

Had the cash market been liquid, he continued, it would have provided a clearer fixing for Libor, but derivatives price information could only provide a "comfortable range" of possible prices. Picking the best point within that range for the bank's own trades was permissible, Koutsogiannis argued to the investigators.

Earlier in the day, concluding his testimony in his own defence, Hayes had described the anger that had driven him to change his response to the charges he faces.

"I felt a sense of injustice ... I was burning with rage," he said. "I felt I had been forced into a situation and was not getting a fair deal. Initially, my focus was just on getting charged [in the UK to avoid extradition to the US], but I got more and more angry – if I had carried on on that path of least resistance I would have been angry for the rest of my life," he said.

Koutsogiannis had also expressed fears of unfair treatment by the bank in 2013, the court heard: "I understood that we were supposed to under-report Libor from 2007 ... I felt that [UBS] global treasury would wash their hands of us, because the investment bank was seen as the source of all the problems in the firm. We were the ugly kids in the family ... [because of] our losses, our levels of leverage and the poor funding of those assets, which was predominantly short-dated cash," he told investigators.

Prosecution and defence closing arguments are due to start on Monday, July 20. The trial continues.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Financial crime and compliance50 2024

The detailed analysis for the Financial crime and compliance50 considers firms’ technological advances and strategic direction to provide a complete view of how market leaders are driving transformation in this sector

Investment banks: the future of risk control

This Risk.net survey report explores the current state of risk controls in investment banks, the challenges of effective engagement across the three lines of defence, and the opportunity to develop a more dynamic approach to first-line risk control

Op risk outlook 2022: the legal perspective

Christoph Kurth, partner of the global financial institutions leadership team at Baker McKenzie, discusses the key themes emerging from Risk.net’s Top 10 op risks 2022 survey and how financial firms can better manage and mitigate the impact of…

Emerging trends in op risk

Karen Man, partner and member of the global financial institutions leadership team at Baker McKenzie, discusses emerging op risks in the wake of the Covid‑19 pandemic, a rise in cyber attacks, concerns around conduct and culture, and the complexities of…

Moving targets: the new rules of conduct risk

How are capital markets firms adapting their approaches to monitoring and managing conduct risk following the Covid‑19 pandemic? In a Risk.net webinar in association with NICE Actimize, the panel discusses changing regulatory requirements, the essentials…

Most read articles loading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here