Jerker Johansson, who was the chief executive of the Swiss group’s investment bank unit until April 2009, agreed to increased incentives for Tom Hayes after being told that the star trader was being offered a $3m-a-year package to defect to rival Goldman Sachs.
Hayes denies charges that he conspired with individuals at eight banks and two brokerage firms to manipulate the Libor interbank lending rates over a four-year period.
On the third day of his trial at Southwark crown court, the prosecution claimed he pushed more than £330,000 of alleged bribes through two brokers during a single year. By 2008, Hayes was earning tens of millions for his Swiss employer.
Sascha Prinz, a senior executive at UBS, wrote to Johansson in June 2008 asking for bigger rewards for the Tokyo-based trader, saying: “One of my most talented traders in Tokyo, Tom Hayes, is being aggressively pursued by Goldman Sachs ... They are offering Tom a larger role with significantly more responsibility plus a $3m guarantee for 2008.”
Prinz stressed that Hayes was making big contributions to profits at UBS. “He made approximately $30m last year and is already up $45m ytd [year to date] in a segment of the market where very few desks on the street make any money at all.” Following the plea from Prinz, Hayes received a letter offering him $2.5m in cash and share options if he agreed to stay at UBS.
Hayes is the first person to face trial after a long-running investigation into Libor manipulation, which has already led to a handful of banks and brokerage firms paying fines of $7bn. The case is seen as a big test for the Serious Fraud Office and its effectiveness in policing banking fraud.
Soon after his promised pay rise, Hayes organised the first of an alleged 14 trades whose sole purpose, the prosecution claimed, was to earn fees for brokers prepared to help him manipulate Libor – the London interbank offered rate. Hayes traded in contracts that placed bets on lending rates between banks for Japanese yen. The 14 “wash” trades would involve UBS and another bank placing identical bets against each other in two separate contracts. Whichever way the market moved, neither bank would win or lose, but the broker would collect a fee for arranging the otherwise pointless trades.
It was on 18 September 2008, during a phone call with one of his closest broker contacts, that Hayes proposed the first wash trade. He began by asking for help moving Libor rates. “If you keep sixes [interest rates on six-month loans] unchanged today, yeah, I will fucking do one humongous deal with you ... like a 50k buck deal ... I need you to keep it as low as possible alright.”
Hayes then suggested a way of paying his broker: “If you’ve got a mate who will like do a flat switch basically... I’ll go in and out with him yeah. You don’t charge them any bro [brokerage fee], but I’ll get charged bro both sides obviously.”
Later they discussed the fee UBS would be charged. Hayes said: “If sixes go up a lot, mate, I can’t afford to do it. But if that happens it’s a $62,000 buck trade for you.” The broker replied: “Alright, let’s see what we can do then. Fucking hell. Alright.”
After reading the transcript, the prosecutor Chawla asked: “Is this anything other than a bribe?”
The court was told that, between September 2008 and August 2009, Hayes used wash trades to pay about £250,000 of fees for one firm; only five trades with a second firm earned £86,000 in fees.
Hayes, who has been diagnosed with mild Asperger syndrome and is awaiting a psychological assessment, denies eight counts of conspiracy to defraud. The trial continues.
This article was written by Juliette Garside, for theguardian.com on Thursday 28th May 2015 17.35 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010