Juliette Garside, The Guardian
A senior Bank of England official nicknamed “The Hammer” was sent emails that, it is claimed, played a key role in the rigging of lending rates between banks, according to evidence presented in the first criminal trial in the Libor scandal.
Martin Mallett was the Bank’s chief currency dealer until he was fired last November for serious misconduct. In 2007, along with traders at big-name banks including Barclays, Lloyds and BNP Paribas, he was copied into emails that were used to skew Libor, a jury has heard.
The claim was made at the trial of Tom Hayes, 35, a dealer in Japanese yen derivatives at the Swiss bank UBS and then the US firm Citigroup, where the prosecution claim he earned £4.8m over a four-year period after attempting to rig Libor – the London interbank offered rate – on an almost daily basis.
The jury at Southwark crown court also heard Hayes attempted to recruit his stepbrother, then a junior employee at HSBC, into the alleged scam. They were shown evidence of collusion with traders at JP Morgan Chase, Royal Bank of Scotland, Hayes’ own bank UBS, as well as two brokerage firms, which in turn applied pressure to other banks including France’s Société Générale.
The emails seen by Mallett were written by an employee at a brokerage firm that Hayes is said to have conspired with. They contained daily forecasts of the interest rates charged between banks for lending in Japan’s yen currency. Hayes placed huge bets on these rates, in contracts that could win or lose him hundreds of thousands of pounds, depending on fractional movements in Libor.
Libor is set by taking the average from a designated panel of 16 top banks, and the forecasts sent out in daily alerts by the broker were intended to inform rate submitters at the panel banks. Mallett was copied in using his hammer@email address.
There was no suggestion Mallett knew of, or was involved, in any manipulation. The Bank of England declined to comment, saying: “In line with convention followed by public bodies, where precedence to criminal trials is afforded wherever possible, it would be inappropriate for the Bank to comment on an active criminal proceeding.”
The prosecution claimed Hayes pushed big fees through the brokerage firm issuing the alerts, in return for being able to influence their contents. QC Mukul Chawla showed evidence of how some emails were rewritten and re-issued on certain days to suit Hayes.
On 22 February 2007, the trader sent out his forecasts before stock markets opened. In an internal message not seen by Mallett or those on the mailing list for the daily alerts, a colleague then requested a change, saying: “Can you get 1mos [1 month Libor] and 3mos [3 month Libor] lower please? … I’m sure you know if you could resend the run out it would be a big help … UBS said he will try and do a deal with me to pay you!”
The alert was resent later that morning, showing higher forecast rates.
“This is scratch my back and I’ll scratch yours,” said Chawla. “What he is doing is … sending out to all of these people his revision. It is not a revision based on anything genuine, it is a revision based on Mr Hayes’ needs … ”
The trader wanted a financial reward for altering his forecasts, the jury heard. They were shown other internal emails in which he requested payments: “ It seems to me he has all this glory and u guys get his support in other things. I get the drib and drabs … How about some form of performance bonus per quarter from your bonus pool for me for the libor service?”
His colleague replied: “I would suggest a lunch … As for kick backs etc we can discuss that at lunch and I will speak to Tom about it next time he comes up for a chat”.
In a later email, another promise is given: “If the needs be I will look into it on a bigger scale eg your salary package”.
The court has ordered news media covering the trial not to reveal the identities of the brokers and their employers.
In April 2007, Hayes began emailing and instant messaging his step brother, Peter O’Leary, then employed by HSBC, which was a panel bank for Japanese yen Libor. Hayes asked his brother if he knew the individual responsible for submitting HSBC’s rates.
The jury heard he also asked if O’Leary could pass on a message: “If you see him you say ‘If you can set a low yen 3 month Libor you will really help my brother out’.”
During a later conversation with his brother, Hayes had a change of heart. “I don’t think I’m going to bother asking for your help on the Libors again because … I don’t want to put you in that position, it’s wrong of me to ask you.”
Not all of Hayes’ claimed attempts to pressure other traders succeeded. After initially fruitful exchanges, Hayes received the following email from a trader at JP Morgan Chase, whose rate setter were not cooperating. It read: “unfortunately they have gone all, “we need to be independent,” on us … so unfortunately nothing much I can do for a while”.
Chawla said it was clear from the evidence that Hayes was not the only one aiming to manipulate rates. “There are many others who are manipulating. But just because there are many doesn’t make it fundamentally right to do this.”
The trial continues.