Deutsche, Merrill courted ex-Libor trader after Citi sacked him - court hears

By Kirstin Ridley

LONDON (Reuters) - Tom Hayes, the first trader to stand trial on alleged Libor rigging charges, was called by Merrill Lynch and Deutsche Bank about possible job offers after being fired by Citigroup for alleged interest rate rigging, a London court heard on Tuesday.

Prosecutors allege Hayes was motivated by greed when he set up a network of traders and brokers at some of the world's leading financial institutions and pressured others to move benchmark rates in directions that benefited his trading book.

Hayes, who worked for UBS as a derivatives trader in Tokyo until he was poached by Citigroup > in 2009, has pleaded not guilty to eight counts of conspiracy to defraud.

Citigroup proceeded to fire him in 2010 but decided against exercising its right to demand repayment of a 2.22 million pound "special cash award" handed to Hayes when he joined in 2009, according to a letter shown to the court.

Hayes told investigators for Britain's Serious Fraud Office (SFO) that after he became the "fall guy" for Citigroup, he "immediately got a call" from both Merrill and Deutsche.

He was poised to accept a job offer from Merrill in January 2011, according to an SFO summary of a transcript of extensive interviews with Hayes shortly after he was arrested in December 2012.

But Michael Halloran, a former senior manager at UBS , warned Merrill, part of Bank of America , not to hire him "as it was too risky", Hayes told investigators in evidence read out by the prosecution and shown on screens to the jury.

The SFO alleges that Hayes was the ringleader in a conspiracy between 2006 and 2010 to rig Libor, the London interbank offered rate that has become a benchmark for roughly $450 trillion (£292.95 trillion) of financial contracts from mortgages to loans.

INTERNAL INVESTIGATION

He lasted just 10 months at Citigroup before a colleague complained about his trading methods and he was sacked. He was arrested at his home in southeast England in December 2012.

During subsequent interviews with the SFO, Hayes told investigators he had been aware that Citigroup was launching an internal investigation into Libor but had assumed it would focus on bank solvency questions rather than traders. He was told by his boss Christopher Cecere there was nothing to worry about, Hayes said in the interviews.

"I literally thought well, look, the solvency thing, you know, I'm talking about the margins and edges and, like, how much you can affect the rate by, you know, like very small amounts, but on very large notionals," he said in January 2013.

Regulators have alleged that banks lowered Libor rates during the financial crisis to paint a rosier picture of their financial health when credit markets dried up, helping to shield institutions from negative attention about creditworthiness.

But in early September 2010, Hayes walked into the Tokyo office, got a tap on his shoulder and was summoned to a meeting that included Citigroup's Japanese CEO Brian Mccappin at which he was told he would be fired.

"Well that's sort of ironic that you're firing me given that you were involved in it up to your eyeballs as well," he said, according to the transcripts.

In a letter laying out its grounds for dismissal sent to Hayes in September 2009, Citigroup alleged Hayes attempted to manipulate yen Libor and Tibor, the Tokyo equivalent rate, to benefit his trading position.

Hayes, whose various nicknames were Tommy, Chocolate and Rainman, refuted accusations of wrongdoing, responding three days later: "I wish to reiterate that my actions were entirely consistent with those of others at senior levels ..."

He said that Citigroup had not "properly explained" the accusations or any evidence and failed to allow him a "proper hearing" with the opportunity for representation.

Prosecutors allege Hayes was part of a conspiracy involving around 25 staff at 10 of the world's largest banks and brokerages to rig rates for profit.

His defence team is expected to lay out its case in July in a trial scheduled to last between 10 and 12 weeks.

(Editing by Jane Merriman)