Cuando bandoleaba

“When I was a bandit,” according to Eric Hobsbawm*. These “violent popular heroes” in “individual or minority rebellion within peasant societies” may have been aspirational to crooked central bankers.

Bankers at England’s central bank may have been among those manipulating currency exchange rates to line their own pockets, said Süddeutsche.de. Several members of the “Chief Dealers Subgroup” of the Bank of England’s “London Foreign Exchange Joint Standing Committee” were among >20 currency dealers recently suspended from large banks around the world. The dealers have been accused of using chatrooms and nicknames such as “The Cartell” or “The Bandits Club” to discuss prices for currency markets.

Süddeutsche Zeitung said there’s gossip that UBS, which also suspended a currency dealer who was a member of the subgroup, might again seek immunity in return for testimony in a potential trial, as it did in the L.I.B.O.R. scandal.

“What’s hanging in the air is whether this central bank knew about the manipulation for years and whether its employees were involved in the affair,” wrote Süddeutsche.de, saying [corruption] at a central bank would add “a new dimension” to recent banking scandals. The Bank of England published minutes of the subgroup’s meetings from 2005 to 2013 this week that are said to be of interest in possible shenanigans. The subgroup last met in February 2013.

In the U.K., the Bank of England acts as a regulator to help ensure financial stability, Süddeutsche.de said. The government body investigating possible currency market manipulation is Britain’s Financial Conduct Authority.

“Currency markets,” said a Süddeutsche.de op-ed, “are the world’s biggest financial market, with a daily turnover of US$5.3 trillion. …London is the center, [where] about half the world’s currency business is transacted. That’s also where the London Fixing is calculated. It is a fixed exchange rate between currencies, the most important one is published every day at 4 p.m. The business is controlled by a few major banks.” Investigations of about 15 banks for currency manipulation began in fall 2013, but the Bank of England was supposedly warned about a potential problem in 2006.

* Eric Hobsbawm’s book Bandits describes three subtypes: noble robbers like Robin Hood, avengers like the Brazilian cangaçeiro Lampiao and haiduks or “primitive resistance fighters.”

Untreue wegen mangelndes Risikomanagement

Breach of trust due to inadequate risk management.

The entire former management board of northern German bank HSH Nordbank is on trial in Hamburg for approving a deal in 2007 allegedly without sufficiently informing themselves first (“bullwhipping it through in only three days right before Christmas” on the basis of a memo that did not contain the data required by due diligence, so the prosecutors). This is the first time an entire bank board has been put on trial in Germany, but it presumably won’t be the last.

In 2007, to avoid receiving a lower rating from the Wall Street ratings agencies one year before the bank’s scheduled stock market launch, prosecutors said, HSH Nordbank moved a collateralized debt obligation package that included risky real estate and commodities paper “away” into an entity called Omega 55, for which the French bank BNP Paribas guaranteed. In return, HSH guaranteed when BNP Paribas moved risky paper, valued at 2.4 billion euros and including Iceland government bonds from Lehman Brothers, into the Omega 55 entity [Zweckgesellschaft, “special-purpose vehicle” according to Bloomberg.com]. HSH’s guarantees for BNP Paribas securities ended up costing HSH >150 million euros in 2008; ultimately in the course of the global financial crisis the bank had to be bailed out by 30 billion euros that included taxpayer money from its majority owners, the German states of Schleswig-Holstein and Hamburg, and taxpayer money from the German bank bailout funds BaFin and SoFFin. Omega 55’s losses were in part kept off the bank’s books, which is why two of the six former HSH board members are further going to be tried for balance sheet falsification [Bilanzfälschung, “false accounting” according to Bloomberg.com]. Guilty verdicts in the breach of trust trial could also result in a civil lawsuit from HSH against its former managers.

Update on 23 Jul 2013: Bloomberg.com reported that charges were also brought against managers from Bayerische Landesbank (BayernLB), Sachsen LB and Landesbank Baden-Württemberg, but these cases have not yet gone to trial.

Update on 16 Dec 2013: HSH Nordbank has been accused of dividend stripping.

Update on 28 May 2014: Hamburg prosecutors are asking for probation and fines of up to 150,000 euros, after they reduced their estimate of damage done to the bank from ~150 million euros to ˜50 million. This is in the breach of trust trial, for signing off on what was a “circular transaction” in 2007, without questioning inconsistencies in the information presented to them.

Update on 09 Jul 2014: The entire former management board of HSH Nordbank was found innocent. Dubious deeds and dereliction of duty, said the judge from the Economic Crimes Court [Wirtschaftsstrafkammer], but he didn’t think there was enough evidence to prove serious dereliction of duty. Also there’s no evidence that the HSH Nordbankers profited financially from the damage they caused. Trials against managers from IKB and the Baden-Württemberg Landesbank for their risk management before the global financial crisis have also been canceled, said Spiegel.de. At the time, what those bankers did was neither illegal nor unusual.

The states of Hamburg and Schleswig-Holstein had to pump 13 billion euros into HSH Nordbank to bail it out.

Update on 10 Jul 2014: The judge gave the prosecutors the option of appealing this decision, and they will appeal it to the supreme court in Karlsruhe.

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