LIBOR not being reported correctly??

[Green_Bear]

LONDON – One of the most important barometers of the world’s financial health could be sending false signals.

In a development that has implications for borrowers everywhere, from Russian oil producers to homeowners in Detroit, bankers and traders are expressing concerns that the London inter-bank offered rate, known as Libor, is becoming unreliable.

Libor plays a crucial role in the global financial system. Calculated every morning in London from information supplied by banks all over the world, it’s a measure of the average interest rate at which banks make short-term loans to one another. Libor provides a key indicator of their health, rising when banks are in trouble. Its influence extends far beyond banking: The interest rates on trillions of dollars in corporate debt, home mortgages and financial contracts reset according to Libor.

In recent months, the financial crisis sparked by subprime-mortgage problems has jolted banks and sent Libor sharply upward. The growing suspicions about Libor’s veracity suggest that banks’ troubles could be worse than they’re willing to admit.

The concern: Some banks don’t want to report the high rates they’re paying for short-term loans because they don’t want to tip off the market that they’re desperate for cash. The Libor system depends on banks to tell the truth about their borrowing rates. Fibbing by banks could mean that millions of borrowers around the world are paying artificially low rates on their loans. That’s good for borrowers, but could be very bad for the banks and other financial institutions that lend to them.

Bankers Cast Doubt On Key Rate Amid Crisis
online.wsj.com/article/SB1208311 … us_pageone

[Green_Bear]

April 16 (Bloomberg) – The British Bankers’ Association said it will ban any member deliberately misquoting lending rates at daily money-market operations amid concern that some contributors are providing misleading quotes.
The global credit squeeze has raised concern lenders have been manipulating the so-called fixing process to prevent their borrowing costs from escalating, the Bank for International Settlements said in March. Participants have complained to the BBA, the Wall Street Journal said today, citing a person familiar with the matter. The BBA holds its annual board meeting today.
It's very important to us that we preserve the integrity of the figures,'' said Lesley McLeod, a BBA spokeswoman in London. It’s something we have been looking at. If we find that people have been putting in figures which don’t reflect accurately their financial figures, the ultimate sanction is to throw them out of the pond.’ >>>>

**Banks That Misquote Money-Market Rates to Be Banned (Update1) **
bloomberg.com/apps/news?pid= … refer=bond

[MortgageBroker]

heard a banker say their ‘blended’ is 5% to me that screams ‘we are buying at extortionate rates!’

[2Pack]

@MortgageBroker

heard a banker say their ‘blended’ is 5% to me that screams ‘we are buying at extortionate rates!’

and manypoeple I know are getting the money off them on a tracker at 4.5% , how long can the banks carry this ???

[verbatim]

Wall Street Journal
Libor Surges After Scrutiny Does, Too
Banks May Be Reacting As BBA Speeds Probe; Impact on Borrowers
By CARRICK MOLLENKAMP
April 18, 2008

LONDON – The world’s most widely used interest rate took its largest jump since the advent of the credit crisis in a sign that banks could be responding to increasing concerns that the rate doesn’t reflect their actual borrowing costs.

Thursday’s sudden jump in the dollar-denominated London interbank offered rate, or Libor, comes after a decision Wednesday by the British Bankers’ Association to speed up an inquiry into the daily borrowing rates that banks provide to establish the Libor rate.

The move by the BBA, which oversees Libor, came amid concerns among bankers that their rivals were not reporting the high rates they were paying for short-term loans for fear of appearing desperate for cash.

In a note to clients Thursday, UBS AG strategist William O’Donnell suggested that banks were responding to the heightened scrutiny, saying that the BBA’s announcement of its inquiry was an attempt “to bring publicly posted rates back into line with the shadow interbank money rate market.”

If sustained, the jump could mean higher debt payments for homeowners, companies and others. Libor serves as the basis for interest rates on trillions ofdollars in floating-rate corporate loans and mortgage loans. Libor rates are also used in hundreds of trillions of dollars in derivatives contracts, such as the interest-rate swaps companies and investors use to protect themselves against sudden shifts in the relationship between short-term and long-term interest rates.

Some expect Libor to increase further. William Porter, credit strategist at
Credit Suisse, said he believes the three-month dollar rate is 0.4 percentage point below where it should be. That echoes the view of Scott Peng, a Citigroup Inc. analyst who said that Libor understated banks’ true borrowing costs by as much as 0.3 percentage points.

The benchmark dollar Libor rate for three-month borrowing hit 2.8175% Thursday, or about .08 percentage point more than the 2.7335% rate set on Wednesday. That was the biggest increase since the three-month rate rose 0.12 percentage point on Aug. 9. At that time, news that French bank BNP Paribas had suspended withdrawals from three investment funds set off global concerns about banks’ financial health. The three-month rate is now at its highest level since March 13, when markets were preoccupied with problems at Bear Stearns Co.

A spokesman for the BBA declined to comment. On Wednesday, the BBA said a review of the data banks provide to Thomson Reuters Corp. – initially planned for June – was already under way. The disclosure that a review had been fast-tracked came after a Wednesday article in The Wall Street Journal highlighted bankers’ concerns about Libor.

The problems with Libor have attracted the attention of policy makers in the U.S. “This is a new development,” Federal Reserve Bank of Dallas President Richard Fisher said during an appearance in Chicago. “I need to learn more.”

Other lending rates for other currencies fell or remained relatively flat. That could be a sign that banks’ demand for dollar loans has made the dollar Libor rate one of the more susceptible to inaccuracies. The three-month sterling rate fell to 5.90625% from 5.92438% Wednesday, while the three-month euro Libor rate edged up to 4.78% from 4.775%.

Every morning, banks submit to Thomson Reuters what it would cost them to borrow money across 10 currencies – the U.S. dollar to the Swedish krona – and 15 maturities, ranging from overnight to a year. In recent months, dollar rates submitted by banks have not varied markedly, nor have they increased or decreased sharply.

Thursday was a different story. The highest quote of the morning was submitted by U.K. lender HBOS PLC, which submitted a 2.86% rate for a three-month loan. That was up 0.10 percentage point from Wednesday. HSBC Holdings PLC posted a rate of 2.85%, up 0.12 percentage point from Wednesday. Bank of America Corp. submitted the lowest rate of 2.77%, up from 2.75% on Wednesday.

HBOS spokesman Shane O’Riordain said the bank had changed the rate to reflect similar moves in U.S. futures markets. “We always err on the side of caution,” he said. An HSBC spokesman and a Bank of America spokeswoman declined to comment.

[Dreaded_Estate]

Some very questionable behaviour out there. Just makes you wonder how bad banks actual as against reported balance sheets are.

[verbatim]

Natural gas traders in the US went to jail for doing something similar; manipulating a published index.

[Who_ll_take_the_rap]

@Dreaded_Estate

Some very questionable behaviour out there. Just makes you wonder how bad banks actual as against reported balance sheets are.

What about the role of the outside Auditor? This profession is highly regulated, stuffed with compulsory 40 hours of CPD, the monitoring of practices is endemic as a result of IFSRA clampdown since Sarbannes Oxley. It begs the question, what real basic criteria governs their work? It is beginning to appear that their work would be on a par with the regulated Investment Advisers. I gave up investment advising in 1997 when I suggested to a client that he invest in near cash funds and it took a good five years before there was a positive return. That plus the stories of interest charged in error etc made me into a right skeptic on the whole financial scene. Whose benefit do they operate for - certainly not the customer or client? Such people can only operate in bubble economies – is that why the Irish are so reluctant for the property bubble to burst?

This kind of leg dragging only hides the holes in our Pension Funds? There will be nothing left for the young even though they are the ones who are asked to contribute the most!

[Green_Bear]

LONDON (Thomson Financial) - The British Bankers’ Association is considering ‘evolutionary changes’ in how it calculates London Interbank Offered Rate, or Libor, the Financial Times reported.

However, the BBA is wary of introducing radical changes to Libor in case it triggers fresh instability in credit markets, the newspaper said.

‘An evolutionary change may be necessary - we have convened a panel to consider this,’ John Ewan, director of BBA Libor group, told the FT.

‘However, changing the rate radically at a time like this would not be the best strategy,’ he added.

The comments come amid rising concern about the Libor rate. A growing chorus of the City bankers fear the index has become distorted in recent months because it is calculated according to banks’ perceived funding costs rather than actual trades.

Libor is calculated each day by the BBA, based on quotes submitted from a panel of banks, for a spectrum of currencies across a range of maturities.

BBA convenes panel to consider changes to Libor - report
forbes.com/afxnewslimited/fe … 16429.html

[yoganmahew]

It would appear that one of the solutions could be to reverse the data collection method - instead of asking banks what rate they borrowed money at, why not ask them what rate they loaned it at?

There must be a flaw somewhere? There always is!

[CelloPoint]

@Who'll take the rap?

Whose benefit do they operate for - certainly not the customer or client? Such people can only operate in bubble economies – is that why the Irish are so reluctant for the property bubble to burst?

This kind of leg dragging only hides the holes in our Pension Funds? There will be nothing left for the young even though they are the ones who are asked to contribute the most!

You’re digging down to the heart of the tiger here WTTR.

I think the reason that the neuve elite of Ireland are so reluctant for a crash to occur is because they know no better.

Any other country in the world wouldn’t waste their time with media paddy-whackery and gombeenism about “talking down the market”. They’d simply find opportunities elsewhere and get on with it. The amount of moaning and groaning and looking upwards to our sacred FF “leaders” is nothing short of soul destroying.

It’s time the current status quo found something else to do – retire in your golfing gated community in Portugal if you so wish – we’d probably be better off if we had our country back. Let the old fogies reproduce in Portugal!

[Green_Bear]

May 27 (Bloomberg) – 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.

``Even when the market knew UBS was massively exposed and Lloyds wasn’t, that was not reflected in Libor,‘’ said Antony Broadbent, an independent banking consultant and former analyst at Sanford C. Bernstein & Co. in London. >>>>

Libor Cracks Widen as Bankers Struggle With Reforms
bloomberg.com/apps/news?pid= … refer=home

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 Liars: UBS, HSBC, Royal Bank of Scotland
benbittrolff.blogspot.com/2008/0 … nk-of.html

[Green_Bear]

May 29 (Bloomberg) – Banks routinely misstated borrowing costs to the British Bankers’ Association to avoid the perception they faced difficulty raising funds as credit markets seized up, said Tim Bond, a strategist at Barclays Capital.

The rates the banks were posting to the BBA became a little bit divorced from reality,'' Bond, head of asset- allocation research in London, said in a Bloomberg Television interview. We had one week in September where our treasurer, who takes his responsibilities pretty seriously, said: `right, I’ve had enough of this, I’m going to quote the right rates.’ All we got for our pains was a series of media articles saying that we were having difficulty financing.‘’

Discrepancies in the rates that banks quote are creating a crisis of confidence in the London interbank offered rate, the benchmark for 6 million U.S. mortgages and more than $350 trillion of derivatives and corporate bonds. In the first four months of 2007, the difference between the highest and lowest rates for three-month Libor didn’t exceed 0.02 percentage point, according to JPMorgan Chase & Co. In the same period this year, it was as wide as 0.17 percentage point. >>>>

Libor Banks Misstated Rates, Bond at Barclays Says
bloomberg.com/apps/news?pid= … refer=home