Libor Probe Turns Into Criminal Investigation ! ISDA Inches Toward Decision On Greece ! EIB Shares ECB Exemption From Losses As Burden Continues To Be Put Upon Private Investors !

http://hat4uk.wordpress.com/2012/02/29/libor-probe-us-justice-dept-turns-it-into-criminal-investigation/

LIBOR PROBE: US JUSTICE DEPT TURNS IT INTO CRIMINAL INVESTIGATION

What started out eleven months agoas a commercial lawsuit against various European banks regarding alleged LIBOR rate manipulation has now turned into a criminal investigation by the US Justice Department. Banks thought to include Barclays Citigroup, HSBC , Royal Bank of Scotland and UBS are undergoing investigation at present.

The criminal aspect of the case was only revealed by Justice late yesterday GMT. It is part of a global investigation across  the US, Japan, Canada and the UK.

It was alleged by insiders at one institution this morning that Barclays “of all of them has been the least helpful to date”.

The suspicion has always been that traders at the banks manipulated the Libor rate to create a windfall of tens of millions of dollars each when they faced very serious liquidity problems during the 2008 credit crunch. During the 2008 financial crisis, overnight Libor spiked – a sure sign banks were having trouble borrowing money. Markets drew confidence later on, when Libor rates began to drop. The Wall Street Journal had doubts about the veracity of that drop at the time. The Slog posted in April 2011:

‘A total of sixteen banks are being investigated, and sources in the US last night confirmed to The Slog, “What started as something half-hearted is now much more focused. I guess you could say the rumour here is that they [the regulators] are onto something pretty big”….’

Back then, French Establishment paper Le Figaro claimed ‘the authorities suspect that key traders [at Barcap] used Treasury information via the main branch dealing with the UK Treasury’. At the time, the Barcap investment division was headed by the Barclays CEO today, Bob Diamond (picture above right). Barclays this morning declined to comment on their involvement or otherwise in the criminal investigation. It is, however, understood that Swiss bank UBS is playing a key role in the case because it agreed to come forward and cooperate in the inquiries. This is almost certainly because none of the current management there are incriminated by the probe.

and.....

http://hat4uk.wordpress.com/2012/02/29/greek-deal-exclusive-isda-moving-towards-yes-opinion-on-cdss-trigger/

GREEK DEAL EXCLUSIVE: ISDA “MOVING TOWARDS ‘YES’ OPINION ON CDSs TRIGGER”

Also: Draghi ‘underestimating liquidity demand’ say market sources

Sources close to the International Swaps and Derivatives Association (ISDA) reported late yesterday that the organisation was tending to come down on the side of a CDS trigger decision in relation to the restructuring of Greek debt. The Slog understands that the revelation of further subordination by the EIB’s (European Investment Bank) deal has hardened attitudes there. However, although there will be a press release at 5 pm GMT today, this will be a yes or no as to whether to take the question further. A ‘no’ at this stage would leave the Greek deal in the clear as far as CDS triggers are concerned – and represent a major blow to Hedge Funds looking for profit via insurance. A ‘Yes’ is thought to be more likely, but if so ISDA’s European Determination Committee will then need further time to reach a definitive view.

It has been revealed that the EIB  is getting a similar exemption from Greek debt writedowns to the euro area’s central bank. Effectively, this is yet another EU institution simply deciding to avert any haircut.

In just under two hours time at 10.20 GMT, we will know how much money Mario Draghi has had to spend plugging the sieves formally known as the private eurobanks. A poll yesterday showed market expectations of a 500bn euro demand, but my conversations with 15 such people last week produced a diferent result: 12 of the 15 sources said they expected the uptake to be much higher.

Banks used  the 489 billion euros borrowed at the first LTRO to cover plug debt holes. Draghi says that this time he wants them to lend out the funds to help strengthen economic growth in the eurozone area, but I don’t believe for a second that is what the Italian ECB boss really thinks. To some extent, Fitch agrees with me: it said yesterday that relatively strong European banks would profit from this second splurge of money, but that it was unlikely to drive strong lending growth ‘given weak demand’. I think it’s unlikely to drive growth because barely a single bank has the slightest intention of doing anything except parking it at the ECB and/or finding the fastest route to its own bottom line.

Yes, there is weak demand – because the euro-Greece-default saga has spooked every business investment decision in the EU. If you were going to generate demand, you wouldn’t do it before the Greek thing had been settled: this is merely Draghi’s final push to sandbag as many banks as he can in the time remaining. And don’t forget – the MSM keep calling this ‘cheap money’ but it is also loss-making money for the banks. Banks don’t do loss-making deals unless they are anything from cautious to desperate.

and....

http://www.bloomberg.com/news/2012-02-28/european-investment-bank-said-to-share-ecb-exemption-from-greek-writedowns.html

The European Investment Bank, the development lender for the 27-member bloc, is getting a similar exemption from Greek debt writedowns to the euro area’s central bank, said two regional officials familiar with the matter.

The European Central Bank negotiated a deal to avoid the 53.5 percent loss on principal that’s costing private investors as much as 106 billion euros ($143 billion). The EIB, which unlike its Frankfurt-based counterpart represents the entire European Union, also owns Greece’s debt and is sidestepping the so-called haircut in the same way, said the officials, who declined to be identified because the plan isn’t public.“This continues the trend of burden-shifting,” said Gabriel Sterne, an economist at London-based brokerage Exotix Ltd. “This is bad crisis resolution and it’s going to affect things for years to come.”

“This continues the trend of burden-shifting,” said Gabriel Sterne, an economist at London-based brokerage Exotix Ltd. “This is bad crisis resolution and it’s going to affect things for years to come.”

The ECB bought Greek and other euro-region government debt in an attempt to hold down borrowing costs amid the sovereign crisis. Making private-sector investors effectively subordinate to the claims of official bodies risks making it more expensive for countries to borrow in the future.

Peter Munro, the head of investor relations and marketing at the EIB, declined to comment, as did a spokesman at the ECB.

The Luxembourg-based EIB’s holding of Greek debt totals more than 100 million euros and less than 1 billion euros, one of the officials said.

‘Risk Premia’

“This bolsters the case for pricing in additional risk premia in peripheral bond markets,” said Richard Mcguire, a senior fixed-income strategist at Rabobank International in London. “While the EIB’s holdings of Greek debt are small, if true, this exception further underlines the unevenness of the playing field.”

The bank is the EU’s main development lender and is owned by all its member states, while the ECB serves the 17-nation euro area. The EIB invested 72 billion euros in 2010, about 88 percent of which was spent on projects within the EU, according to its website. Vice President Wilhelm Molterer said in December that the bank would cut lending this year amid the euro-region crisis.

The EIB funds itself in the bond markets and raised about $22.5 billion this year from benchmark issuance in dollars, euros and pounds, according to data compiled by Bloomberg. The bank has top credit grades from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.

“This is all politics,” said Sebastian Paris-Horvitz, the chief market strategist at HSBC Private Bank Suisse SA in Geneva. “Defaulting toward any official institution of the EU would not fly well at this stage.”