(Reuters) - Citigroup Inc (C.N) 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.
Libor has existed since the 1980s, when banks developed it as a benchmark for adjustable rates on corporate debt. Calculated in a daily process overseen by the British Bankers' Association, a UK trade association, it measures the interest rates at which banks lend to each other and covers a range of 10 currencies and maturities of up to a year.
The rate also is considered a gauge of a bank's health. Because banks may not want to reveal when they are ailing - and thus paying higher rates to borrow - there is an incentive for them to report a lower rate than they are actually paying. Banks also could manipulate the rate for financial gain.
A BBA spokesman said it is committed to "retaining the reputation and integrity of BBA Libor, which continues to be the authoritative benchmark of the wholesale money market." The spokesman said the calculation by Thomson Reuters is transparent and that "rigorous standards" are used in scrutinizing and governing Libor. A spokesperson for Thomson Reuters said the company "is engaged by the BBA to calculate and distribute Libor."
Questions about Libor's reliability first surfaced in 2008. But the first signs that regulators were investigating the rate emerged last year, when UBS said it had received subpoenas from U.S. regulators and was cooperating in return for conditional immunity from investigators. So far, investors have sued more than a dozen banks, alleging they were harmed by manipulation of the rate.
Now, the court and regulatory documents filed in Japan, Canada, U.S. and the UK are revealing the contours of overlapping, parallel investigations focused on alleged rigging of the Libor rate for yen-denominated assets between 2007 and 2010 at Citigroup and UBS. The probes have led to the suspensions or departures of nearly a dozen bankers so far.
The alleged problems at UBS and Citigroup appear to be linked by a single trader, Thomas Hayes, who worked at UBS from about 2006 to 2009 and at Citigroup from 2009 to 2010, according to people familiar with the situation.
While at Citigroup, Hayes allegedly attempted to influence a London desk to manipulate the yen-denominated Libor rate, according to people familiar with the situation. When the trading was spotted, Hayes was told to leave the bank and Citigroup informed regulators, according to these people.
In December, Japan's regulator, the Financial Services Agency, filed an administrative action against Citigroup and suspended it from trading derivatives tied to Libor from January 10 to 23.
The FSA action didn't identify the two traders, but people familiar with the situation said one of them was Christopher Cecere, who oversaw G10 trading in Asia, and the other was Hayes. In an interview with Reuters, Cecere said he left Citigroup voluntarily with full bonus and that he has not been questioned by regulators. Hayes could not be reached for comment.
In a parallel investigation, documents filed by the Canadian Competition Bureau, which investigates anti-competitive activity, detail how a bank identified as a "cooperating party" sought to manipulate yen Libor. UBS is the cooperating party, according to people familiar with the situation.
The documents, filed recently with the Ontario Superior Court, allege that "Trader A" and "Trader B," sought to manipulate Libor by contacting traders in London at HSBC Holdings PLC (HSBA.L), Deutsche Bank AG (DBKGn.DE), Royal Bank of Scotland Group PLC, J.P. Morgan Chase & Co (JPM.N) and Citigroup. Barclays Plc (BARC.L) separately has said in a company filing that it's under investigation in the Libor inquiries.
Spokespeople for the six banks declined to comment.
In one instance, "Trader A" explained to a Royal Bank of Scotland trader "how he had and was going to manipulate Yen Libor." "Trader A" then instructed the RBS trader on what Libor submission to make. The RBS trader "acknowledged these communications and confirmed that he would follow through."
The documents filed in Canada also describe how a trader at the cooperating party worked with a broker at ICAP PLCIAP.L, a prominent London trading firm. In November, ICAP said it had received requests from regulators for information as part of Libor probes and was cooperating. A company spokesman declined comment.
Reporting by Carrick Mollenkamp; Editing By Alwyn Scott and Edward Tobin