Libor Scandal Spreads, Ratings Troubles Deepen, Volcker Rule Bites

Receiving Wide Coverage ...

A Hard Rain's Gonna Fall: JPMorgan Chase (JPM) on Thursday became the latest megabank implicated in the global scandal involving the rigging of Libor, the London Interbank Offered Rate. The U.S. banking giant coordinated its Swiss franc Libor submissions with those of Royal Bank of Scotland, which, Scan noted yesterday, has itself reached a $612 million rate-rigging settlement. The JPM connection surfaces through documents filed in connection with RBS's deal earlier in the week with U.S. and U.K. authorities, the Financial Times reports. Specifically, two of its yen swaps traders were implicated in dealings with Tom Hayes, a star trader who began his career at RBS before moving on to UBS and Citibank (NYSE:C). Goldman Sachs (GS) also reportedly wooed Hayes. The trader is rapidly emerging as having played as prominent a role in the in the Libor-rigging scandal as Bruno Iksil, aka the London Whale, did in JPM's Chief Investment Office brouhaha. Hayes, a brainy and socially awkward Brit nicknamed "Rain Man," was the "connective tissue in pervasive efforts by several banks to boost trading profits by manipulating the London interbank offered rate," according to a long profile in the Wall Street Journal. His "strong connections with Libor setters in London [are] invaluable," his boss at UBS wrote in an email to executives, including one who now co-heads the firm's investment bank, according to a Journal report citing documents released as part of the RBS settlement. "Hayes often acted with the knowledge of bosses mindful of his ability to rack up big trading profits," it writes. Citi eventually won the tussle for his services. Hayes was arrested by the U.K.'s Serious Fraud Office (No, there is not a Non-Serious Fraud Office) in December. He has not been charged but reportedly remains under investigation. He faces separate wire fraud, price-fixing and conspiracy charges by the U.S. Department of Justice (which Hayes referred to, perhaps prophetically, as "the dudes who…put people in jail" in a phone call that the DOJ tapped). There are no indications that Hayes has cut a deal with the feds, the FT reports. That, in turn, raises the likelihood that the Rain Man will face pressure to roll on associates, colleagues and, most notably, higher-ups. In fact, Hayes has already invoked the "I'm innocent. It was my bosses!" defense, is cooperating with British authorities and pointing the finger at former superiors, the Journal writes, citing Jennifer Arcuri, a close friend of the trader. (As cooperating witnesses are fond of saying: "Call me a snitch. Call me a rat. But call me at home 'cause that's where I'm at.") The FT describes the Libor riggers as part of "a clubby world where fortunes were made on friendships and connections" and where one trader, whose name was redacted, continued to co-ordinate submissions with RBS even after moving to JPMorgan. One way or another, the Libor scandal appears destined to rise up the ranks of U.S. and non-U.S. banks alike. While working for UBS's Tokyo unit (which pled guilty to a U.S. fraud charge as part of the bank's $1.5 billion Libor settlement), Hayes told colleagues during morning meetings which way he planned to push Libor and even posted status updates on his Facebook page, the Journal reports. Wall Street Journal, Financial Times