The Last Look…

I went to the home of football last week, otherwise known as The London Stadium, to witness the latest West Ham disappointment live, and there was, I thought, something wrong with the pitch – every time a pass was played along the touchline, instead of staying in play, it curved out of play. It was like the pitch was a “crown”, with everything sloping away from the centre.

Of course, it could be that I was watching some handsomely-paid people fail at the basics of football (it happens, even at West Ham), but I couldn’t help but think that if there was a bias, one team at least should have known about it.

Why do I mention this? Well, first and foremost, because I was challenged to by a fellow spectator to get my opinion into a column, and never let it be said that an Arsenal fan bested me (you know who you are…), but secondly because it does link to a subject in our industry, where the obvious was ignored – the IBOR trials.

Last week, as I am sure you are aware, five former Barclays and one former Deutsche trader had their convictions for manipulating Libor and Euribor overturned. There is little doubt that Libor was, to an extent manipulated, but while it was less obvious, apparently, to those in power; those in the know all understood the instructions came from much higher up the bank (and indeed society).

It seems the UK court system understands this now (10 years too late I have to stress), because what was notable to me was how the last conviction to be overturned, Christian Bittar’s, had one important differentiator – he originally pleaded guilty. The five Barclays traders fought their trials, and made many of the arguments that ultimately led to the reversal, before nevertheless being found guilty.

I am no legal expert, as has been proven many times in the past, but I would have thought it is very difficult to overturn a verdict when the accused entered a guilty plea – no matter what the circumstances? The fact that Bittar’s conviction was also overturned just shows that what took place in the middle of the last decade was a witch hunt against bankers and those convicted were the fall guys – otherwise why even accept an appeal?

The big questions, therefore, have to be how did this all take so long, and why were they convicted in the first place (and lost initial appeals)? The first question is easy – the legal system moves at its own pace and, sadly, for the men involved and their families, they will never get that time back.

The second is harder, or rather it creates some hard answers. Putting aside the witch hunt that was taking place at the time of the original trials, we have to ask the question, why didn’t the very senior management at the banks, some of whom it has been stated in court were either the originators of, or the conduit of, the message to low ball rates, speak up? One side knew that the field was tilted, why keep quiet?

Without wishing to get too “Oliver Stone” (look it up kids) over this, it can only be because they knew the wrongdoing did not originate on the trading desks and so were either keeping quiet for self-preservation or to protect even higher echelons. I mentioned this to a friend at the weekend and they made the obvious observation that the traders “knew they were doing wrong and could have refused”. Well job security is one reason why it’s tough to tell your boss you won’t do something, there is also the fact that several, if not all of them, thought they were following a policy established way above their pay grade – and it is not as though it was obvious wrongdoing that caused great harm, on balance I would imagine fewer people are hurt by lower rather than higher. Besides, the whole atmosphere at that time was “keep calm”, it was clear that nobody wanted higher rates due to the strain it would put on an already weakened financial system.

The sad thing is that apart from clearing their names and the huge benefits not being a convicted criminal allows in other day-to-day aspects of their life, this whole reversal is pretty pointless given they have already had their liberty taken away from them. They can, I suppose, seek compensation, but that also means more years (and it will be years) of grinding through the court system, and is not for everybody.

There is one other factor in this, one that worries me a little. My friend observed, innocently I should stress, that this means dealers will be acting with less fear going forward. We agreed this was a poor choice of words, inferring as it does, that people will not be sanctioned in some shape or form for market manipulation. I think it is pretty obvious that they will be, if they step over what are now clearly defined lines, compared to 15-20 years ago.

With one exception, and we should expect Peter Johnson’s conviction to be overturned given the current environment, this means that all the IBOR convictions have been overturned. This is as it should be, because they were, as I argued at the time and since, unsafe convictions. It should not, however, mean that we enter another era of unconstrained behaviour, because the circumstances next time will be very different (not least because there are the aforementioned guidelines and channels to accelerate concerns internally.)

This means that we should be happy that another stain has been (legally) removed from the industry, but still be watchful something similar doesn’t happen again. We’ve seen the pass go out of play, thanks to little fault of our own, but we need to adjust our behavioural expectations to ensure the next one stays in the field of play.

colin@thefullfx.com