Photo: Yepoka Yeebo / Business Insider
Switzerland’s competition authority is investigating UBS, Credit Suisse, and 10 other financial institutions on charges the companies manipulated the London Interbank Offered Rate (LIBOR), which is used as an index for $350 trillion of swaps and $10 trillion of loans. The Swiss authority, COMCO, said member institutions colluded on their submissions to the British Banking Authority, to move rates at their discretion and possibly sell products with that knowledge.
“They tried to coordinate submissions,” Head of Unit Financial Services at COMCO, Thomas Nybegger, told Business Insider. “This coordination can go in both directions, so you can try to coordinate that way, that LIBOR will rise, and you can also collaborate in the opposite direction.
LIBOR is the primary benchmark rate for most short term interest rates, as well as longer term rates for mortgages and corporate loans.
The benchmark is set every morning at 11 a.m. when the British Banking Authority asks member banks to submit the rate they perceive they would receive if they went to another dealer seeking funds. Banks are not supposed to see other contributor estimates.
Bids are processed by Thomson Reuters, which excludes the top and bottom tails — roughly between 40 and 55 per cent of the contributions — to come to the interquartile mean. Submissions are then arithmetically averaged to create the base LIBOR quote, and then translated for a number of other currencies.
COMCO does not yet know what products were sold on the LIBOR movements that potentially benefited the institutions.
“We think that independent of the direction to which LIBOR rates will move, you can sell products to your benefit,” Nybegger said. “But how it really works … on products like their derivative credits, we don’t know yet.”
The Swiss investigation follows similar moves by European authorities who have also launched probes into products linked to interbank rates.
“We are taking these investigations very seriously and are fully cooperating with the authorities,” Torie von Alt, a UBS spokesperson, said.
Other banks named in the suit include the Bank of Tokyo-Mitsubishi UFJ, Citigroup, Deutsche Bank, HSBC, J.P. Morgan Chase, Mizuho Financial, Rabobank, the Royal Bank of Scotland, Société Générale, and Sumitomo Mitsui.
Credit Suisse and Citigroup declined to comment.
Representatives from J.P. Morgan Chase were not immediately available for comment.
Switzerland is also investigating similar alleged collusion on the Tokyo Interbank Offered Rate.