Update 7/20, 10:00 A.M.
FORTUNE — Earlier this week, Citigroup CEO Vikram Pandit told analysts not to use Barclays’ $450 million Libor settlement as a guidepost for what his firm might have to pay. And he could be right. Citigroup (C) might end up paying much more.
A number of studies have shown that when it comes to lying about the key bank rate, Barclays was far from the worst offender. That title may belong to Citi.
In early 2010, two economics professors from UCLA and the University of Minnesota looked at Libor manipulation and found that, at least according to one measure, Citi had misstated its lending rate by more than any other large U.S. Bank in the run up to the financial crisis. Worldwide, the bank that had the largest spread between what the its Libor rate should have been and what was reported, according to the analysis, was the Royal Bank of Canada.
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The professors compared Libor submissions to another harder to fake bank rate and found that on average Citi understated its borrow costs by an average of 0.12 percentage points from August 2007 to August 2008. That may not sound like much, but it’s 50% more than the 0.08 percentage points that Barclays under reporting its own borrowing costs, according to the professors’ analysis.
And as we now know, Libor affects how much consumers and companies pay on a wide variety of loans and financial instruments, so even a very small difference in the rate can mean a big difference collectively to borrowers and investors.
Citi declined to comment on the study. RBC says the study is inconclusive and makes a flawed comparison when trying to determine what its Libor rate should have been. Other studies suggest RBC’s Libor submissions were more accurate than other banks. The bank says it had one of the lowest Libor rates during the period examined by the professors because it was one of the healthiest banks at the time, not because of any wrong-doing. Says a RBC spokeswoman, “We have determined that RBC acted in accordance with the British Bankers’ Association requirement that our LIBOR submissions accurately reflected our perception of our cost of funds and that we did not collude with other banks.”
That’s not the only study that said Citi’s pants were on fire when it came to Libor. Back in mid-2008, when the Wall Street Journal began to report the problems with Libor, which is set by averaging the middle eight borrowing rates submitted by 16 large banks, the paper compared the banks’ reported Libor rates and the cost of insuring their debt. Once again Citi was shown to have understated its borrowing costs by the most. By the WSJ’s calculations, from January 23 to April 16 of 2008 Citi under-reported its borrowing rate by 0.87 percentage points, or nearly triple the 0.30 percentage point difference that the paper figured Barclays was fibbing by.
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Last week, brokerage analysts at Nomura constructed their own approximation of the difference between what the banks’ true borrowing costs were and what they told the Libor panel. The analysts, lead by Glenn Schorr, looked at a longer time frame than the other studies, from August 2007 to May 2010.
Guess what bank stood out. Citi reported its loan costs at just under 2.1% during the period. But Nomura calculated Citi’s real rate was more like 3.6%, meaning the bank understated its borrowing expense by 42%. That was by far the largest margin of any bank. The difference between Barclay’s reported and actual borrowing rate was just 6%.
None of this ensures that the bank will end up paying a bigger fine than Barclays, or other banks. The two other U.S. Banks that are part of the rate setting process, JPMorgan Chase (JPM) and Bank of America (BAC), appear to have lied more than Barclays about their borrowing costs as well.
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Why Citi understated its rate matters. In Barclays’ case, it was clear that traders at the bank were trying to profit from the manipulation. But if Citi lied solely to make it look better, law professor John Coffee of Columbia says that may not be enough to prove it was trying to manipulate Libor.
“Criminal prosecutors are unlikely to go after a bank that was just trying to make itself look good,” says Coffee.
Still, a number of investors, pension funds and municipalities have begun to bring suits, and Citi is named in a number of them. The fact that Citi’s rates were so far from reality might make the bank an easy target. What’s more, at such a large bank, it will be easy to find some division of the bank that would have benefited from an artificially low Libor rate. In fact, the 2010 academic Libor study found that Citi’s interest revenue jumped in early 2009, at around the same time most suits claim Libor was being manipulate.
In general, banks tended to bunch their Libor quotes. As a result, Conan Snider, who is an economics professor at UCLA and co-author of the 2010 study, says it makes sense that Citi’s rate would have been the most manipulated. The worse shape you were in, the more you had to lie to keep your rate in line with others. And in late 2008 and early 2009, few banks were worse off than Citi. Now, what they did to cover that up may come back to haunt the bank.
When it comes to the lies Wall Street told during the financial crisis, it appears, all is far from forgiven.
Update: An earlier version of this story did not include a comment from RBC.
