Barclays’ record $451 million fines for interest rate manipulation sent bank shares plunging as U.S. and U.K. authorities pursue sanctions in a global investigation of more than a dozen lenders.
Barclays shares slid as much as 18%. U.K. Chancellor of the Exchequer George Osborne called for a criminal probe amid speculation that lenders could face billions of dollars in lawsuits, while Prime Minister David Cameron called on CEO Robert Diamond to show accountability.
Traders at the U.K.’s second-biggest bank by assets routinely coordinated with counterparts from at least four other banks in an attempt to move interest rate benchmarks, according to documents released Wednesday by the Commodity Futures Trading Commission, the Justice Department and the U.K. Financial Services Authority. The benchmarks included the London interbank offered rate and Euribor, a related euro-denominated rate. In both cases, the goal was to generate profits on derivatives held by the banks, the agencies said.
LIBOR is one of the most widely used benchmarks used by institutional investors, including pension funds. For example, short-term interest rate hedging contracts are usually based on LIBOR.
David Paterson, head of corporate governance at the National Association of Pension Funds in London, said in an e-mailed statement: “The impact of LIBOR manipulation on pension funds is hard to pin down, and could have happened through a range of financial instruments. Pension fund trustees should ask their fund managers to tell them if and how their assets have been affected.
“This issue raises doubts about previous remuneration which need to be answered,” Mr. Paterson added.
The case offers the most detailed public account yet of conduct that prompted regulators and criminal authorities spanning three continents to investigate whether traders colluded to rig interest rates and banks sought to bolster their perceived stability by hiding their true costs of borrowing during the financial turmoil of 2008.
At stake is the credibility of the decades-old LIBOR system and the securities and loan products that rely on it, ranging from an estimated $554 trillion in interest-rate contracts, according to the FSA, to mortgage and credit-card payments made by consumers around the world.
Barclays pledged to pay $200 million to the CFTC, $160 million to the Justice Department, and £59.5 million ($91 million) to the FSA. The fines were the largest in the history of the CFTC and FSA.
“We expect that the cost of lawsuits related to LIBOR manipulation will dwarf the fines imposed on Barclays,” said Sandy Chen, a banks analyst at Cenkos Securities in London, who is “penciling in multiyear provisions that could run into the billions.”
Citigroup, Royal Bank of Scotland Group, UBS, ICAP, Lloyds Banking Group and Deutsche Bank are among the firms regulators are investigating. A total of 18 banks are surveyed as part of the process of determining LIBOR and related rates.
RBS shares slid as much as 14% Thursday, Lloyds fell as much as 7.8% and ICAP dropped as much as 4.7%. UBS was down as much as 3.8%, and Deutsche Bank declined as much as 5.5%.
Barclays is assisting the investigation into other firms and individuals, and was the first to provide “extensive and meaningful cooperation,” the Justice Department said. UBS last year disclosed it had opened its doors to U.S. antitrust investigators in exchange for immunity.
Thao Hua contributed to this story.