With billions of dollars and their reputations on the line, financial institutions have been spreading the blame in recent meetings with authorities, according to government and bank officials with knowledge of the matter. While acknowledging their own wrongdoing, institutions are pointing out actions at other banks that they believe are worse and in some cases, extend to top executives.
One official involved in the case said that banks are emphasising that were not as bad as the next guy.
The Swiss bank UBS, which has a history of regulatory run-ins, has shared emails, instant messages and other information suggesting it had colluded with traders at Deutsche Bank, HSBC and the Royal Bank of Scotland to manipulate key interest rates, according to court documents and bank employees. In talks with authorities, HSBC is providing its own account of the activities, according to a lawyer briefed on the matter. Citigroup has also detailed rate manipulation with other banks.
When the British bank Barclays recently negotiated a settlement with authorities, it highlighted that other European institutions took part in the rate-rigging scheme, said officials close to the case. Like UBS, Barclays has provided information on activities involving HSBC and Deutsche Bank.
Several banks are using Barclays $450-million settlement as a guidepost in preliminary discussions with authorities. JPMorgan Chase and Citigroup are each emphasising to authorities that their chief executives were not implicated in the wrongdoing as in the case of Barclays, and therefore the banks deserve to be treated less severely, according to the officials.
A Deutsche Bank manager who oversaw traders is facing scrutiny, according to a person involved in the case. However, a Deutsche Bank spokesman said no managers or top executives had been aware of any rate manipulation, adding that the investigation was continuing.
JPMorgan, Deutsche Bank, HSBC and Citigroup have said they are cooperating with officials.
Authorities around the world are investigating more than 10 big banks for their roles in setting global interest rates like the London interbank offered rate, or Libor. Such benchmarks underpin trillions of dollars of financial products, including mortgages and student loans.
Regulators are examining whether banks colluded to move the rates up or down to get extra profits and limit losses on their trading positions. Some banks are also under investigation for reporting artificially low rates to make themselves appear financially healthier.
When banks first started conducting internal investigations at the behest of regulators two years ago, they figured the potential penalties would be manageable, according to bank officials.
But the size of the Barclays settlement and the growing public outcry have left banks scrambling to limit their culpability as the threat of criminal actions increases. Part of the banks problem is that their internal investigations have created a road map that authorities are using to pursue criminal and civil cases.
Those findings provide a detailed portrait of the wrongdoing.
Interviews with dozens of government and bank officials who spoke on the condition of anonymity because the investigation is developing, and a review of court documents and regulatory filings show varying degrees of exposure. Banks like UBS, Deutsche Bank and Citigroup uncovered that employees had worked with traders at other firms to influence rates, according to government and bank officials. A small number of institutions, including Credit Suisse and Bank of America, found more limited actions.
The extent of the evidence has created an every-bank-for-itself attitude.
The financial industry often tries to negotiate a common deal to avoid getting singled out for bad behaviour. This year, five banks collectively struck a multibillion-dollar agreement with federal authorities to address foreclosure abuses.
With the rate investigation, institutions are not sharing information or even discussing the case with rivals, according to lawyers involved in the matter. In part, they do not want to appear to have close ties with their rivals, since such cozy relationships are part of the governments inquiry.
There is no information-sharing among banks unlike the past 15 years of federal investigations, said a lawyer involved in the case.
So far, Barclays has borne the brunt of the fallout. In June, the British bank settled with British and American authorities for reporting false rates to bolster its profits and project a rosier picture of its financial position. The settlement prompted the resignation of top executives, including the chief executive Robert E Diamond Jr, and helped to erase more than $3 billion of the banks market value.
At first, Barclays rejected a settlement offer by the Commodity Futures Trading Commission, the regulator leading the investigation, according to officials close to the case. The bank believed the terms were unfavorable, said a lawyer involved in the matter. As the agency prepared to take the case to court, negotiations resumed. While Barclays secured a modestly smaller penalty, the bank still paid record fines.
In trying to work out a deal, the British bank offered information on the multiyear scheme with Deutsche Bank, HSBC, Socit Gnrale and Crdit Agricole, according to government and bank officials. Also, a senior trader at Barclays tried to manipulate the Euro interbank offered rate, or Euribor.
Other cases are expected to follow. The US Justice Department is aiming to file criminal actions against two banks before the end of the year and is preparing to arrest former traders at Barclays and other banks, according to government officials. In addition, state attorneys general and local district attorneys have approached the Justice Department in recent weeks, seeking a role in the case.
Since the Barclays settlement, banks have been reassessing their defense strategies and reaching out to authorities. Officials warn that all talks with the banks are preliminary, and no settlement deals are imminent.
After targeting Barclays for rate manipulation four years ago, regulators turned their attention to a wide swath of banks. In a 2010 letter, the Commodity Futures Trading Commission contacted a small group of banks, including UBS. The regulator quickly expanded the list, sending a memo to all 16 institutions that helped set Libor rates at the time.