[credit provider=”Peter Thal Larsen” url=”http://www.twitter.com/peter_tl”]
When the Libor scandal broke this summer, it was the first time most of the world (even people who pay attention to markets) had ever heard of the rate.Thanks to documents uncovered by Bloomberg, though, we now know that there were traders who suspected something strange was happening years ago.
Back in 2007, the Libor was especially volatile, so RBS’s rate setter in London increased the bank’s submission for three-month yen Libor by 9 basis points:
That caught the attention of a trader at Brevan Howard, Europe’s biggest hedge fund, according to Bloomberg:
Brevan Howard wanted to know why the rate jumped, even after the Fed had announced unprecedented steps to boost liquidity at the end of the week, something that should have lowered the measure, the people said.
RBS employees in London and Tokyo discussed the hedge fund’s call in instant messages. Nygaard phoned Walker in London to say RBS should be “careful how we speak with them about what we, how the rate is set,” according to a transcript of an instant-message conversation obtained by Bloomberg.
On a conference call later that day that included Walker and Darin Spilman, an RBS sales manager, Danziger told the Brevan Howard trader how the bank calculated its submissions in the absence of any cash trading and gave his views on what he expected to happen to the Tokyo interbank offered rate, or Tibor. Danziger, Spilman, Walker, Nygaard and Tan declined to comment, as did Anthony Payne, a spokesman for Brevan Howard in London.
So there’s that.
Also, let’s just take a moment to recognise the power of subpoenaing instant messages on Wall Street. There’s always interesting stuff in those conversations.