The Last Look…

If you thought that the noise around the Libor/market manipulation/trader dismissal issue from nearly a decade ago was diminishing, you were wrong. It could, in fact, be about to ramp up, and that raises some interesting questions about how we view the actions of a group that have largely been overlooked in the whole fiasco – senior management.

Tom Hayes, the unwilling poster-boy of the Libor scandal, has filed a $400 million lawsuit against UBS – the firm he was working for when the manipulation claims first surfaced. Hayes recently, of course, won an appeal against his conviction in the UK’s Supreme Court, but is bringing this case in the US – presumably because a win would be more lucrative than in the UK.

Hayes is claiming he was a “hand-picked scapegoat” by the bank, which is what you would expect from someone making such a claim, which brings into question something that has bothered me for as long as I have been writing about the conduct issues – management behaviour.

I noted, repeatedly, at the time of the FX dealer unfair dismissal tribunals that while the dealers would have known that sharing information outside the institution (and sometimes inside) was wrong – and as such they contributed to their dismissal as the UK tribunals largely found – in multiple cases, accessing chat rooms was an explicit target in their appraisals, which were set by management.

Repeatedly, these managers who set these targets were brushed over or ignored by the investigators, but surely they would have had as much, if not more, culpability than those fired? This was also a theme of the Libor cases, in which investigations by the BBC and others highlighted the pressure from not just dealing room management, but board, central bank and even government level, to lowball rates during the onset of the GFC.

I have stated previously that in just about every case involving alleged market manipulation, the traders were thrown under the bus by senior management – the buck stops here signs were posted too far down the chain – so it will be interesting to see what the US court system makes of this, assuming it does actually get to a hearing.

There will be a few very interested observers of this case, but it bears mentioning that there are notable differences between what happened to the Libor traders, those dismissed by banks for chat room activity and, the other high-profile saga involving Mark Johnson. In the case of the former and latter there is little doubt in my mind that they were offered up by the banks concerned to shut down a potentially tricky investigation. The irony is, of course, that the banks’ reputation suffered anyway.

In the case of the chat room traders, as noted, I am a little more ambivalent, but there was still an element of throwing lambs to the slaughter – even though the banks had already been fined.

In all cases, however, there were “hidden hands” at work to ensure the stench didn’t get to their office, in some cases these were bank officials, in others, clearly, politicians. The challenge, a decade and more on from the events, may be pinning these people down.

That this issue is still going on is a continuing sad indictment of senior management from 10-15 years ago, who made poor decisions

There are those, no doubt, who will question the wisdom of Hayes continuing what has clearly been such a painful process, but this overlooks the (financial and non-financial) cost to him, and people like him. Both Hayes and Johnson continued in their efforts to clear their name after serving a jail sentence – something that few of us have, or would want to have, to experience. They did so because they believed what so many of us believed – that fundamentally they had followed the usual process, one that was endorsed, and often explicitly encouraged, by their institutions’ management.

So the decision to seek compensation after acquittal is a natural step, but not one that all would take given the stress that comes with it – and that is something for the individuals to consider. Hayes is the first to take this step in suing his employer for charges brought by the legal authorities, and it is by no means clear if he will succeed. If he does, however, that might make a few others more confident in taking the same approach – and that reopens a can of worms several banks thought they had finally buried.

This, of course, brings us back to a recurring aspect of all these cases involving senior management – poor decision making. Had those involved in deciding to throw these traders under the bus truly understood what happened and why, they may have come to a different decision and explained at the time that the activities involved were normal practice, but history. It may have involved another 0 on the fine, although it’s not certain because they were fined for these activities anyway, but it would have closed the whole affair down a decade ago.

As it is, one bank is now facing yet another tricky court case, and others may have to do the same, as individuals seek recompense. That this is still going on is a continuing sad indictment of senior management from 10-15 years ago. For their poor decision making then – especially in their willingness to give up staff for institution-sanctioned conduct – is still haunting the banks all these years on.

colin@thefullfx.com