Citi, UBS provide keys to interest rate-rigging probe: sources

Wed Feb 22, 2012 10:17am EST
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By Carrick Mollenkamp

(Reuters) - Citigroup Inc (C.N: Quote) and UBS AG UBSN.VX, in a series of disclosures to law-enforcement officials, have provided crucial information to investigators in multiple countries as part of inquiries into whether the world's biggest banks manipulated a global benchmark interest rate, according to people familiar with the situation.

The two banks, linked by a trader who worked at both, have provided closely guarded details to U.S., UK, Japanese and Canadian regulators about how their traders and those at other banks allegedly sought to influence the yen-denominated London interbank offered rate, known as Libor, according to people familiar with the probes and court and regulatory documents. Spokespeople for Citigroup and UBS declined to comment.

Details are now emerging from the investigations that suggest the lone trader was at the heart of the alleged improprieties at both UBS and Citigroup, according to sources. They also show efforts by the two banks to cooperate in identifying other banks involved in the alleged rigging.

The information has bolstered the investigation of an alleged rate-rigging scheme, and the investigation has widened to include at least five other banks and a prominent London trading firm, according to these people and documents.

Now the investigation is expected to move beyond yen-denominated trading, drawing in more financial institutions and traders, according to people familiar with the situation.

The new disclosures mark a turning point in a year-long investigation into how Libor is set. Despite mounting questions surrounding the accuracy of the rate, it retains its influence as a benchmark for $350 trillion in derivatives market securities and is the basis for pricing about $10 trillion in loans for everything from home mortgages to companies with shaky credit histories.

The details also raise troubling questions about the rate's reliability, and already have opened the door to numerous lawsuits. According to documents filed in the probe in Canada, for example, banks "entered into agreements to submit artificially high or artificially low" Libor submissions "in order to impact the yen Libor interest rates published by the British Bankers Association."

The details were provided by an unidentified "cooperating party" and occurred between 2007 and 2010. According to people familiar with the matter, UBS is the bank cooperating in the Canadian probe. The link to UBS was first reported by Bloomberg News.   Continued...