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Tuesday, May 27, 2008

LIBOR Liars: UBS, HSBC, Royal Bank of Scotland

Yesterday's post was about EURIBOR (This Bear Market Rally is Over: EURIBOR Rises Again). Today’s is about LIBOR. When I start writing about interbank rates back to back like this, there is only one thing equities in general are likely to do in the short term...

... and that is TANK.

UBS (UBS.N), HSBC Holdings (HBC.N) and Royal Bank of Scotland (RBS.N) were all caught lying about LIBOR.

Libor Cracks Widen as Bankers Struggle With Reforms (Update2): “Few companies have suffered from the subprime mortgage collapse more than UBS AG, which has taken $38 billion of writedowns and losses, replaced its chief executive officer and chairman and saw its stock tumble 60 percent.

Yet on 85 percent of the days between July and mid-April, the Zurich-based bank told the British Bankers' Association that it could borrow in the money markets at lower interest rates than its rivals. Not even the U.K.'s Lloyds TSB Group Plc, which only wrote down $1.4 billion, could obtain the rates UBS said it was able to get, according to data compiled by Bloomberg.”

UBS would appear to be one hell of a dirty bank. Now LIBOR is going to have to move higher. This will up Eurodollar rates… and all of this will feed into the financial system forcing up everything from swap rates to mortgages. Bravo!

“Such discrepancies are creating a crisis of confidence in the London interbank offered rate published daily by the London- based BBA and taken from the contributions of UBS, Lloyds TSB and 14 other banks. Rates on corporate bonds, leveraged buyouts loans, derivatives and even U.S. mortgages are pegged to Libor.”

Trading volume in Eurodollars slid 7.5 percent in April from the prior month and open interest has declined by 17.6 percent in the past two months. The value of the contract at expiration is determined by the interest rate on three-month Libor, and its yield in the meantime represents the market's forecast. The Eurodollar becomes useless if LIBOR is nothing but a scam.

The greatest offenders are listed below:

“UBS's three-month offered rate in dollars averaged 1.3 basis points less than Libor from July through April 15. By contrast, Lloyds TSB quoted rates that were 0.04 basis point above Libor on average. A basis point is 0.01 percentage point.

HSBC Holdings Plc, Europe's largest bank by market value, gave rates that averaged 1.4 basis points less than Libor. The London-based bank has taken $19.5 billion in writedowns and charges.

Royal Bank of Scotland Group Plc, the U.K.'s second- biggest bank, submitted rates that averaged 0.9 basis point below Libor. It has reported $15.3 billion in losses and writedowns.”

This also means these clowns have something to hide. Their balance sheets must be stuffed with bad Level 3 assets.

Related Posts:
ZEW Hits Record Lows, LIBOR Woes Hurting Eurodollar
Libor Poised For Shake-Up, Credibility GONE
RISE Dark Lord Libor! RISE!
The Race To The Bottom Accelerates
The South Sea Bubble and Today’s Central Banks: FRB, BOE, ECB
The TED Spread, LIBOR and EURIBOR = Scary Bad

14 comments:

Anonymous said...

Wow the news is really bad today on all fronts.

Anonymous said...

This is the context:

http://globaleconomicanalysis.blogspot.com/2008/05/quantifying-commodities-speculation.html

It is a ponzi scheme, pure and simple. When it comes apart, it will make 1929 look like pre-school.

Bund Fox said...

Durable goods NDXA just came out at +4.2% mom, so you might want to go back to the drawing board on the end of the bear market rally idea.

Ben Bittrolff said...

Bund Fox,

Don't get too excited. The devil is in the details...

"Total orders excluding defense equipment decreased 0.3 percent as bookings for military gear rose 4.8 percent."

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