Two traders have been jailed after being convicted of conspiring to rig the Euribor global interest rate. Colin Bermingham, 62, and Carlo Palombo, 40, both former Barclays traders, were convicted of conspiracy to defraud.
Mr Bermingham received a five year jail term, while Mr Palombo was jailed for four years. Another trader, Sisse Bohart, has been acquitted.
The sentences bring to an end the biggest trial so far for rigging interest rates – in this case the Euribor benchmark used to fix the interest rates of millions of euro-denominated loans.
Lisa Osofsky, director of the Serious Fraud Office, said: “These men deliberately undermined the integrity of the financial system to line their pockets and advance the interests of their employers.
“We are committed to tracking down and bringing to justice those who defraud others and abuse the system.”
Euribor is a key euro benchmark borrowing rate, underpinning about $180tn of financial products, and the accuracy of the rate is important to maintaining trust in the financial system.
Every day, one trader at each bank would estimate the interest rate he or she thought the bank would have to pay to borrow cash from other banks, based on the rates banks were paying that morning.
The estimates would be submitted to the European Banking Federation (EBF), based on current market transactions. Those submissions would then be averaged and a rate would be published.
In the 1990s and 2000s, traders routinely requested that the submissions be tweaked up or down by tiny amounts to suit their banks’ commercial interests. Banks typically had trading positions or investments that would benefit from higher or lower submissions.
The traders’ defence has been that this was normal commercial practice. The Serious Fraud Office (SFO) says it is corrupt.
During the sentencing hearing, Judge Michael Gledhill echoed controversial remarks by Mr Justice Cooke, who presided over the first interest rate rigging trial in 2015 of former UBS trader Tom Hayes, saying he wanted “a message sent out to the world of banking”.
“Those convicted of manipulating interest rates will face substantial custodial sentences,” he said.
Mr Hayes was sentenced to 14 years in prison, which was reduced on appeal to 11 and a half years.
Judge Gledhill said it was difficult to understand why Mr Bermingham had become involved in conspiracy, because there was no personal gain to him from accepting requests from traders to put in higher or lower submissions.
But, he added: “Part of the answer lies in a desire to help Barclays prosper, and perhaps it is something to do with the desire to be respected by others. Whatever the reasons, you have been convicted of being knowingly and dishonestly involved in this conspiracy.”
A second trial
Mr Bermingham, Mr Palombo and Ms Bohart were tried a second time by the SFO, after a jury failed to reach a majority verdict in an earlier trial in 2017.
Ahead of that trial, Christian Bittar, a former Deutsche Bank trader, pleaded guilty to conspiracy to defraud.
Another former Barclays trader, Philippe Moryoussef, attended earlier hearings but decided not to attend the trial, with his lawyer saying he could not be confident of a fair trial.
He was convicted in his absence and is now a fugitive from British justice.
Both Mr Palombo and Mr Bermingham were convicted by majority verdicts, with two jurors against a guilty verdict in both cases.
Carlo Palombo’s lawyer John Hartley said Mr Palombo and his family were devastated by the outcome.
“Mr Palombo started at Barclays as a junior trader and was taught by his management from an early stage about making requests of the submission desk,” said Mr Hartley in a statement.
“He gave evidence during the trial that this was an ordinary course of business at the bank and there was never an issue of any of his actions being dishonest at that time and that he had received no training on Euribor submissions. No senior members of management were on trial.”
In a BBC Panorama programme “The Big Bank Fix” in 2017, the BBC revealed a secret recording which implicated the Bank of England in a practice called “lowballing”.
Lowballing occurred during the 2008 financial crisis, when banks artificially lowered their estimates for Libor (the London Interbank Offered Rate) – the dollar and sterling equivalent of Euribor.
In a statement to the BBC, the Bank of England said Libor was unregulated at the time.
At the 2016 trials, the SFO said it was investigating lowballing. However, after years of investigation, no prosecution has been mounted.
Libor submissions defence
Mr Hayes’s case is now with the Criminal Cases Review Commission (CCRC) amid growing doubts about the safety of his conviction. The evidence against him also consisted of “trader requests” to put in higher or lower libor submissions.
His defence in 2015 was that there were a range of potential submissions, based on the slightly differing interest rates banks were paying to borrow money on any given morning.
Requests to raise or lower it within that range were legitimate, his lawyers argued. Prosecutors dismissed the notion of a range.
However, in 2017, at the trial of Barclays traders for rigging rates, John Ewan, the former Libor manager at the British Bankers Association, agreed requests for higher or lower submissions within a range could be acceptable. The two defendants in that trial, Ryan Reich and Stelios Contogoulas, were acquitted.
The trial of Palombo and Bermingham heard similar evidence from Helmut Konrad, a retired banker who helped set up Euribor in 1999, who told the court in 2018 it was “okay” for banks to submit a rate from a number of options that were equally good, even if one rate would be more profitable for the bank.
At this year’s trial, he told the court “as long as we’re talking about the range of permissible rates, it’s fine”.
Mr Hartley said Mr Palombo was considering an appeal.
What is Euribor?
Euribor is short for Euro Interbank Offered Rate. The Euribor rates are based on the interest rates at which a a panel of European banks borrow funds from one another. In the calculation, the highest and lowest 15% of all the quotes collected are eliminated. The remaining rates will be averaged and rounded to three decimal places. Euribor is determined and published at about 11:00 am each day, Central European Time.
When Euribor is being mentioned it is often referred to as THE Euribor, like there’s only 1 Euribor interest rate. This is not correct, since there are in fact 5 different Euribor rates, all with different maturities (until november 1st 2013, there were 15 maturities). See current Euribor rates for an overview of all rates.
History of Euribor
Euribor was first published on 30 December 1998 (value 4 January 1999). 1 January 1999 was the day that the Euro as a currency was introduced. In the years before, a lot of domestic reference rates like PIBOR (France) and Fibor (Germany) existed.
What determines level of the Euribor interest rates?
Since the Euribor rates are based upon agreements between many European banks, the level of the rates is determined by supply and demand in the first place. However there are some external factors, like economic growth and inflation (for more information on inflation see: inflation.eu) which do influence the level of the rates as well.
Why is Euribor important?
The Euribor rates are important because these rates provide the basis for the price or interest rate of all kinds of financial products, like interest rate swaps, interest rate futures, saving accounts (see: Euribor and savings) and mortgages.
Which are the European panel banks?
The panel banks are the banks with the highest volume of business in the euro zone money markets. The panel consists of banks with a first class credit standing, high ethical standards and an excellent reputation. For the full list of all the panel banks, click here.
Euribor and LIBOR
Euribor and LIBOR are comparable base rates. Euribor is the average interbank interest rate at which European banks are prepared to lend to one another. LIBOR is the average interbank interest rate at which a selection of banks on the London money market are prepared to lend to one another. Just like Euribor, LIBOR comes in different maturities. The main difference is that LIBOR rates come in different currencies. We would like to refer to current LIBOR interest rates and background information on LIBOR, in case you are interested in additional information on LIBOR.
Savings and Euribor
Euribor is the interest rate at which a large number of European banks do provide short term loans to one another. Banks which borrow money from other banks can use these funds to provide loans to other parties. In fact, Euribor is the purchase price a bank does have to pay for a short term loan.
Banks do have other ways to acquire funds: by offering savings accounts for example. Someone saving money by opening a savings account with a savings bank does actually lend money to a bank.
Interest rates on savings accounts and Euribor
For 2 reasons the level of the Euribor-rate and the interest rate offered on a savings account are strongly interrelated in many European countries. Panel banks (see “What is Euribor”) do have the possibility to borrow money from other banks (at the Euribor rate) or from private individuals. The interest rate offered to those which hold a savings account is in many cases lower than the Euribor rate. The difference is what can be called “margin for the bank”. When the Euribor rate decreases, the margin the bank makes is decreasing as well. That’s why banks often do decide to lower the interest rate on savings accounts when the Euribor rate decreases and vice versa. However this does often happen at a delay: the interest rate offered by many banks on savings is only altered when there has been a interest market change of some magnitude.
In general Euribor is in many European countries a good indicator of the movement of interest rates on savings accounts.
ECB refinancing or minimum bid rate
The European Central Bank (ECB) is taking care of the monetary policy of the Euro-zone (countries which do use the Euro) since 1999. The ECB did however not take over from the Central Banks (like the Bank of England), but does cooperate with them. One of the main tasks of the ECB is safeguarding price stability in the Euro-zone. The objective is to keep inflation below a rate of 2% a year.
The main refinancing rate or minimum bid rate is the interest rate which banks do have to pay when they borrow money from the ECB. Banks do so when they are short on liquidities.
There is a strong response of interbank interest rates (like the Euribor) to changes in the ECB refinancing rate. This does imply that the ECB interest rate can can be used as a tool to influence market interest rates.
Eonia is short for Euro OverNight Index Average. The Eonia rate is the 1-day interbank interest rate for the Euro zone. In other words, it is the rate at which banks provide loans to each other with a duration of 1 day. Therefore Eonia can be considered as the 1 day Euribor rate.
Image: Former Barclays traders Carlo Palombo and Colin Bermingham have been convicted of Euribor rate-rigging