'If You Aint Cheating, You Aint Trying': The Brazen Greed of the Currency-Manipulating Bankers
A settlement between five big financial companies and the federal government shows traders blithely and openly discussing their misdeeds.
Were they greedy, or were they just foolish?
It’s one of the big questions from the 2008 economic crisis that remains open to debate. Did the world’s banking system nearly collapse because financiers were grabbing money wherever they could, no matter the costs, or was it because bankers failed to understand the risks caused by a housing bubble and credit crunch?
In at least one case, there’s a ready answer: They were both greedy and foolish.
An agreement between five banks and the federal government, announced Wednesday, forces five banks to pay a combined $5.6 billion and plead guilty to rigging markets. Four banks—Barclays, Citigroup, JPMorgan Chase, and the Royal Bank of Scotland—pled guilty to antitrust violations. UBS received immunity in the antitrust case, but will plead guilty to manipulating the London Interbank Offer Rate, or LIBOR, a benchmark interest measure. (An earlier federal agreement with UBS was rejected by a federal judge as too lenient.)
In a combination of horrifying and entertaining, the settlement agreements provide many excerpts from conversations that show bankers who knew what they were doing was improper but enjoyed it anyway. In a series of chummy chats, they gleefully collude on setting exchange rates, help each other out at the expense of customers and, more broadly, violate the public’s trust in markets as fair exchanges. They also appear shockingly cavalier about creating a digital trail as they manipulate world markets. If it’s not a fair representation of the finance industry generally, it is certainly an excellent representation of the worst stereotypes about the industry.
“mate yur getting bloody good at this libor game . . . think of me when yur on yur yacht in monaco wont yu,” wrote one to another. LIBOR depends on banks self-reporting lending rates. But misreporting may have offered a falsely rosy impression leading up to the credit crunch, with banks reporting they could borrow more cheaply than they actually could.
As the quote shows, participants were blithe about what they were doing. One online chat room even referred to itself as “the cartel.” Documents record multiple cases of debates about who to allow in, who to keep out, and how to know whether to trust someone. In one case, a Barclays employee asked to join, but was invited only on a probationary basis—and with a threat:
After extensive discussion of whether or not this trader “would add value” to the Cartel, he was invited to join for a “1 month trial,” but was advised “mess this up and sleep with one eye open at night.”
In some cases, as in this one from UBS, bankers rewarded each other with booze for their work:
Broker-A1: think [Broker-A2] is your best broker in terms of value added :-)
Trader-1: yeah . . . i reckon i owe him a lot more
Broker-A1: he's ok with an annual champagne shipment, a few [drinking sessions] with [his supervisor] and a small bonus every now and then
Generally, the atmosphere was one of mutual encouragement and aggrandizement:
Subsequent to the fix, traders in the chat rooms congratulated one another by saying: “nice work gents…I don my hat”, “Hooray nice team work”, “bravo…cudnt been better” and “have that my son…v nice mate” and “dont mess with our ccy [currency]”. One of the traders commented “there you go … go early, move it, hold it, push it”. HSBC stated “loved that mate… worked lovely… pity we couldn’t get it below the 00” and “we need a few more of those for me to get back on track this month.”
Ostensibly, the figures involved were competing with each other, rivals for the same money. In practice, it seems they were pulling together. As a Barclays employee noted, “the less competition the better.” A sense of camaraderie pervades conversations, as the groups band together even against their own firms. Discussing a possible participant, one Citibank trader wondered, “is he gonna protect us like we protect each other against our own branches[?]”
Making money, even at customers’ expense, was cause for celebration. A bank might effectively lie to its customers about the price of foreign currency and pocket the difference, a Barclays vice president boasted:
markup is making sure you make the right decision on price . . . which is whats the worst price i can put on this where the customers decision to trade with me or give me future business doesn’t change . . . if you aint cheating, you aint trying.
Bankers also used codes and signals to jack up the amount customers would be charged:
Certain UBS FX salespeople and traders used hand signals during certain customers’ “open line” calls in order to conceal from customers that they were being marked up. For example, unbeknownst to the customer, a salesperson would hold up two fingers to signal that the trader should add mark up of “two pips” to the quoted price.
Remarkably, these conversations were conducted in online chat rooms, where they were legally discoverable. Not that there wasn’t concern. “[A]ll senior management ... want to show the world we are the strongest bank with loads of liquidity,” one UBS trader complained about his firm’s low submissions. “We’d lend at 0 US! Has been a lot of media focus on barclays libor fixes so they are paranoid.”
In another case, a UBS employee charged with adherence to LIBOR standards seems to acknowledge the funky business.
“JUST BE CAREFUL DUDE,” the banker wrote.
“I agree we shouldn’t ve been talking about putting fixings for our positions on public chat,” the employee who submitted rates replied.
Much of the conversation is far more quotidian. Bankers make requests to each other for submissions that will help them on certain trades and certain days, feel each other out, and thank each other for the help. Requests for changes to exchange rates and interest rates fly back and forth with the casual feel of video gamers swapping cheat codes.
The brazenness of the operations, and the many damning exchanges to be found in the court documents, might explain why this is a rare case where banks have been forced to plead guilty for conduct involved in the financial crisis. (Individual traders and brokers are neither named nor indicted.) Critics have attacked previous settlements in which banks agreed to pay fines but escaped actually pleading guilty, and in this case the Justice Department insisted on pleas.
On the other hand, the fines pale in comparison with the banks’ balance sheets—even when combined with the more than $4 billion that some of the banks agreed to pay regulators for currency manipulation in November. And despite being branded felons, all five banks have secured waivers that allow them to continue to do business as usual. In other words, they’ll be just fine. Greedy? Sure. But maybe not so foolish after all.