
Hayes says his UBS boss gave tacit approval to rig Libor
Manager’s signal to trader: 'Carry on doing it but don't send emails'

Testifying in his own defence for a second day, former UBS and Citi trader Tom Hayes said he was "shocked" when his manager at UBS, Mike Pieri, warned him in a 2009 phonecall not to discuss his efforts to change the Libor benchmark fix in his favour over email.
"It was very different from my normal communications in UBS," Hayes told a jury in London's Southwark Crown Court today (July 8). Pieri had subsequently apologised, saying he had "over-reacted" to the news of investigations into reported rigging of the dollar Libor rates, Hayes added. "The message I got was 'carry on doing it but don't send emails'. He said he could lose his job," Hayes said.
Hayes faces eight charges of conspiracy to defraud in relation to Libor-rigging and has pleaded not guilty to all eight.
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Day-by-day coverage of Tom Hayes Libor trial
The court also saw 2009 emails between Pieri and the head of the UBS fixed income, credit and commodities operation, Yvan Ducrot, around the time when Hayes said he was considering leaving the bank for Goldman Sachs. Pieri argued that Hayes was valuable to UBS in part because "he has strong contacts with Libor setters in London - the information is invaluable for he derivatives books". But, when Ducrot asked Hayes's fellow trader Roger Darin for comment, Darin disagreed with Pieri.
"He speaks to the brokers who are usually asked by other banks where to set Libor - big deal," Darin told Ducrot. "I find it embarrassing when he calls up his mates to ask for favours on high/low fixings, it makes UBS appear to manipulate others to suit our positions. What's the legal risk of UBS asking others to move their fixing?"
Hayes said that Darin's comments represented a long-running feud between the two men. "Darin and I hated each other," he told the court.
Whether or not co-operating with setters at other banks was acceptable, the defence argued, UBS had been basing its submissions on its own commercial interests even before Hayes joined the bank, with several chat exchanges from as early as 2006 showing other traders discussing the optimum Libor rate for their portfolios with UBS rate submitters. And Hayes reiterated his argument that, as long as Libor submissions were within a range of acceptable values, picking the most commercially advantageous point was not dishonest. Confronted with a 2007 chat exchange in which he told RBS trader Will Hall "3m [three-month] Libor is too high 'cause I have kept it artificially high [by] being mates with the cash desk", Hayes said that the word 'artificially' was a deliberate exaggeration - he had used it to give Hall enough confidence to make trades that would drive up the value of Hayes's forward rate agreement portfolio, he said.
As the financial crisis worsened in 2007 and 2008, the court heard, commercial concerns took second place to the senior management priority of 'lowballing' - setting Libor submissions low in order to give the impression that the bank was stronger. 'Midballing' - ensuring that UBS avoided criticisim of its submissions by trying to put them near the average of other banks' submissions - was also encouraged, the defence argued.
As well as changing their own Libor submissions, UBS traders also tried to influence other banks' submissions by offering large interbank loans just before the Libor submission window, in order to give submitters at other banks the impression that rates were lower, the defence said. Hayes described one such trade: "We will offer three-month cash at a rate to push Libor down and then make a [forward rate agreement] trade that will benefit from pushing it down in an hour's time."
The email conversation included an expression of relief that only Rabobank and HBOS had taken the other side of the trade, "not the big boys". "If Deutsche and RBS had had the opposite side, they would do the same thing as us - bid on the cash in order to drive Libor higher", Hayes said, pointing out that the larger banks would be able to outgun UBS's efforts to keep the market rate low.
The trial continues.
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