Libor trial: moving rates for profits was accepted, court hears

Managers thought "nothing wrong" with fixing rates for profit, jury hears


Lawyers for former UBS and Citi trader Tom Hayes brought evidence today (July 17) that managers at UBS knew and approved of the bank's derivatives traders influencing its Libor submissions, as they closed the case for the defence. Hayes faces eight charges of conspiracy to defraud and has pleaded not guilty.

The former head of funding for UBS's rates division, Panagiotis Koutsogiannis, refused to appear as a witness for the defence; since he lives outside the UK, he could not be compelled to appear. But the defence presented a transcript of an interview with investigators from the UK Financial Conduct Authority and the US Commodity Futures Trading Commission – also involved in investigating Libor-rigging – in 2013.

Koutsogiannis said he was present at a management meeting on Libor submission in August 2007. He said he was not aware of traders making specific requests to the bank's Libor submitters from 2007 onwards, and that senior management had not specifically instructed them to do so. But when the interbank cash market was frozen, he said, there was nothing wrong with the practice.

"The [BBA submission] definition says cash – but there was no cash being traded. Our instruction was to share derivatives market information as market colour, not UBS's own derivatives position information," he said.

"The point of the meeting in August 2007 was to exchange as much derivatives information as possible, because there were no cash transactions. Some submitters were asking the derivatives side for their reset risk. I saw nothing wrong with it – picking a number that would benefit the bank's profit and loss."

I felt a sense of injustice... I was burning with rage

Had the cash market been liquid, he continued, it would have provided a clearer fixing for Libor, but derivatives price information could only provide a "comfortable range" of possible prices. Picking the best point within that range for the bank's own trades was permissible, Koutsogiannis argued to the investigators.

Earlier in the day, concluding his testimony in his own defence, Hayes had described the anger that had driven him to change his response to the charges he faces.

"I felt a sense of injustice ... I was burning with rage," he said. "I felt I had been forced into a situation and was not getting a fair deal. Initially, my focus was just on getting charged [in the UK to avoid extradition to the US], but I got more and more angry – if I had carried on on that path of least resistance I would have been angry for the rest of my life," he said.

Koutsogiannis had also expressed fears of unfair treatment by the bank in 2013, the court heard: "I understood that we were supposed to under-report Libor from 2007 ... I felt that [UBS] global treasury would wash their hands of us, because the investment bank was seen as the source of all the problems in the firm. We were the ugly kids in the family ... [because of] our losses, our levels of leverage and the poor funding of those assets, which was predominantly short-dated cash," he told investigators.

Prosecution and defence closing arguments are due to start on Monday, July 20. The trial continues.

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