The rotten heart of capitalism: interest rate-fixing scandals


The magnitude of the banking scam must be realised and tough action taken

Swiss bank UBS  in Zurich

The UBS building in Zurich. Photograph: Michael Buholzer/Reuters

This is the year the consensus changed. Around the world, policy-makers, regulators and bankers recognised that the legacy of the 20-year credit boom up to 2008 is more corrosive than all but a few realised at the time. The bankers – and the theorists who justified their actions – made a millennial mistake. Navigating a way out of the mess was never likely to be easy, but it is made harder still by not recognising the magnitude of the disaster and the necessary radicalism involved if things are to be put right.

If there were any last doubts they were dispelled by the record $1.5bn fine paid by the Swiss bank UBS for “pervasive” and “epic” efforts to manipulate the benchmark rate of interest – Libor – at which the world’s great banks lend to each other. The manipulation was at the behest of the traders who buy and sell “interest rate derivatives”, whose price varies with Libor, so that cumulatively billions of pounds of profits could be made. Nor was UBS alone. What is now evident is that all the banks that made the daily market in global interest rates in 10 major currencies were doing the same to varying degrees.

There was a complete disdain for the banks’ customers, for the notion of custodianship of other people’s money, that was industry wide. It is hard to believe this culture has evaporated with the imposition of a fine. No banker falsifying the actual interest rates at which he or she was borrowing or lending, or trader who requested that they did so, had any sense that there is something sacred about banking – that the many billions flowing through their hands are not their own. It was just anonymous Monopoly money that gave them the opportunity to become very rich. The UBS emails, which will be used to support criminal charges, could hardly be more revealing. This was about making money from money for vast personal gain.

Interest rate derivatives are presented as highly useful if complex financial instruments – essentially bets on future interest rate movements – that allow the banks’ customers better to manage the risks of unexpected movements in interest rates. Whether a multinational or a large pension fund, you can buy or sell a derivative so you will not be embarrassed if suddenly interest rates jump or fall. Bookmakers lay off bets. Interest rate derivatives allow buyers to lay off the risk that their expectations of interest rate movements might be wrong.

What makes your head reel is the size of this global market. World GDP is around $70tn. The market in interest rate derivatives is worth $310tn. The idea that this has grown to such a scale because of the demands of the real economy better to manage risk is absurd. And on top it has a curious feature. None of the banks that constitute the market ever loses money. All their divisions that trade interest rate derivatives on their own account report huge profits running into billions. Where does that profit come from?

The answer is it comes largely from you and me. Global banking, intertwined with the global financial services and asset-management industry, has emerged as a tax on the world economy, generating much activity and lending that has not been needed, but whose purpose is to make those who work in it very rich. The centre-left thinktank IPPR reports that people with identical skills earn on average 20% more in financial services than in other industries, with the premium rising the higher the seniority. That wage premium does not come from virtuous hard work or enterprise. It comes from how finance is structured to deliver excessive profit.

Scandalous

The Libor scam is an object lesson in how finance taxes the rest of the economy. Plainly, the final buyers of the mispriced interest rate derivatives could not have been other banks, otherwise they would have lost money and we know that they all made profits. In any case, they were part of the scam. The final buyers of the mispriced derivatives were their customers. Some must have been large companies, but many were those – ranging from insurance companies and pension funds to hedge funds – who manage our savings on our behalf.

Here a second scam kicks in. One of the puzzles of modern finance is why the returns to those who buy shares in public stock markets are so much lower than the profits made by the companies themselves. One of the answers is that there are so many brokers, asset managers and intermediaries along the way all taking a cut. Sometimes it is through excessive management fees, but another way is not doing honest to God investing – choosing a good company to invest in and sticking with it – but through churning people’s portfolios or unnecessarily buying interest rate derivatives to protect against interest rate risk, while charging a fee for the “service”. Many of those mispriced interest rate derivatives will have ended up in the investment portfolios of large insurance companies and pension funds or, more sinisterly, in the portfolios of the banks’ clients.

Most rotten

Bank managements are presented as ignorant dolts, fooled by rogue traders. They were no such thing. The interest rate derivative market is many times the scale than is warranted by genuine demand precisely because it represented such an effective way of looting the rest of us. The business model of modern finance – banks trading on their own account in rigged derivative markets, skimming investment funds and manipulating interbank lending, all to underlend to innovative enterprise while overlending on a stunning scale to private equity and property – is not the result of a mistake. It represents a series of choices made over 30 years in which finance has progressively resisted any sense it has a duty of custodianship to its clients or wider responsibilities to the economy. It was capitalism allegedly at its purest. We now understand it was capitalism at its most rotten. It needs wholesale reform.

The government’s proposals to ringfence investment banking from the rest of a bank’s activities, following the proposals from Sir John Vickers, is a start. But it is only that. Last week, Conservative MP Andrew Tyrie’s cross-party parliamentary commission proposed ” electrifying” the ringfence with the threat of full separation if malpractice continues. It also considered banning banks from trading in derivatives on their own account. But while tough, the commission should extend its brief. The issue is to create a financial system in its entirety that serves individuals and business alike, makes normal profits and, above all, embeds its public duty of custodianship in the bedrock of what it does. The government fears that more upheaval will unsettle banking and business confidence. It could not be more wrong. Reform is the platform on which a genuine economic recovery will be built.

Will HuttonComment by Will Hutton – Guardian
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Banks to sue Dubai Group’s US$10 billion loans in debt pile


DUBAI: Royal Bank of Scotland (RBS) and two other banks have begun legal proceedings against an investment vehicle owned by Dubai’s ruler, an unprecedented move to secure repayment after two years of unsuccessful debt talks.

RBS, along with German lender Commerzbank and South Africa’s Standard Bank, had threatened legal action after walking away from negotiations over Dubai Group‘s US$10bil debt pile, sources said in July.

The banks began legal proceedings in a London court on Sept 6, breaking with the precedent in previous restructuring cases involving Dubai state-linked entities because of the opaque and untested insolvency system in the United Arab Emirates (UAE).

Given the complexities of the case, in particular the lack of precedent, the London filing threatens to extend debt talks well into the future, having dragged on since Dubai Group missed interest payments on two facilities in late 2010.

“Arbitration could be two years and we don’t want to see the destruction of shareholder value just because these banks have thrown their toys in the corner,” said a source.

In a statement, RBS said it was forced to take action after several concessions offered to the group failed to secure a solution.

“We do, however, want to make clear that our preference was always to conclude an agreement without formal legal proceedings and we therefore remain open to such an outcome if an acceptable commercial resolution is forthcoming,” it said.

Such sentiment adds fuel to the belief that the legal action is more likely a negotiating tactic on behalf of the three banks all of which are unsecured creditors to secure a better deal from Dubai Group.

“They are unsecured and have nothing so they are doing it out of desperation or because they expect the Dubai government will bail out the group,” said one UAE-based banker.

The government walked away from debt talks in January, dashing any hope creditors had of state support.

Dubai Group, a unit of Dubai Holding which is the investment arm of Sheikh Mohammed bin Rashid al-Maktoum, was hard hit by the global financial crisis in 2008 due to excessive use of leverage in its investments and a sharp decline in the value of its portfolio companies.

Like a number of other state-linked entities in the emirate, it embarked on talks with creditors to restructure debt and extend maturities.

The London filing comes at a time when others on the restructuring are considering a proposal, put to the group before the summer, which would see all lenders extend their obligations to allow for Dubai Group’s asset values to recover before they are sold.

Debt extensions range from 3 years for secured creditors up to 12 years for unsecured creditors. The sheer length of time is the main concern for the three banks because of the cost it would impose on unsecured lenders to extend cash for so long.

“Over 35 banks are working towards an agreement and a global term sheet is now being considered by bank credit committees, a number of which have indicated their support,” Dubai Group said in a separate statement. “We believe that we can reach a consensual agreement with our creditors.” – Reuters

The Libor fuss!


The story behind the Libor scandal

Logos of 16 Banks Involved in Libor Scandal – YouTube

SINCE the outbreak of the Libor scandal, readers’ reaction has ranged from the very basic: What’s this Libor? to the more mundane: How does it affect me?

Some friends have raised more critical questions: Barclays appears to have manipulated Libor to lower it; isn’t that good? The problem first arose in early 2008; why isn’t it resolved by now? By popular demand to demystify this very everydayness at which banks fix this far-reaching key rate, today’s column will be devoted to going behind the scandal starting from the very basics about the mechanics of fixing the rate, to what really happened (why Barclays paid the huge fines in settlement), to its impact and how to fix the problem.

What’s Libor

The London Inter-Bank Offered Rate (Libor) was first conceived in the 1980s as a trusty yardstick to measure the cost (interest rate) of short-term funds which highly-rated banks borrow from one another. Each day at 11am in London, the setting process at the British Bankers’ Association (BBA) gets moving, recording submissions by a select group of global banks (including three large US banks) estimates of the perceived rates they would pay to borrow unsecured in “reasonable market size” for various currencies and for different maturities.

Libor is then calculated using a “trimmed” average, excluding the highest and lowest 25% of the submissions. Within minutes, the benchmark rates flash on to thousands and thousands of traders’ screens around the world, and ripple onto the prices of loans, derivatives contracts and other financial instruments worth many, many times the global GDP. Indeed, it has been estimated that the Libor-based financial market is worth US$800 trillion, affecting the prices that you and me and corporations around the world pay for loans or receive for their savings.

 A file photo showing a pedestrian passing a Barclays bank branch in London. Barclays has been fined £290mil (US$450mil) by UK and US regulators for manipulating Libor. — EPA

Indeed, anyone with a credit card, mortgage or car loan, or fixed deposit should care about their rate being manipulated by the banks that set them. In the end, it is used as a benchmark to determine payments on the global flow of financial instruments. Unfortunately, it turns out to have been flawed, bearing in mind Libor is not an interest rate controlled or even regulated directly by the central bank. It is an average set by BBA, a private trade body.

In practice, for working purposes, Libor rates are set essentially for 10 currencies and for 15 maturities. The most important of these relates to the 3-month US dollar, i.e. what a bank would pay to borrow US dollar for 3 months from other banks. It is set by a panel of 18 banks with the top 4 and bottom 4 estimates being discarded. Libor is the simple average (arithmetic mean) of what is left. All submissions are disclosed, along with the day’s Libor fix. Its European counterpart, Euro Interbank Offered Rate (Euribor), is similarly fixed in Brussels. However, Euribor banks are not asked (as in Libor) to provide estimates of what they think they could have to pay to borrow; merely estimates of what the borrowing rate between two “prime” banks should be. In practice, “prime” now refers to German banks. This simply means there is in the market a disconnect between the actual borrowing costs by banks across Europe and the benchmark. Today, Euribor is less than 1%, but Italian banks (say) have to pay 350-40 basis points above it. Around the world, there would similarly be Tibor (Tokyo Inter-Bank Offered Rate); Sibor and its related SOR (Swap-Offered Rate) in Singapore; Klibor in Kuala Lumpur; etc.

What’s wrong with Libor?

Theoretically, if banks played by the rules, Libor will reflect what it’s supposed to a reliable yardstick to measure what it cost banks to borrow from one another. The flaw is that, in practice, the system can be rigged. First, it is based on estimates, not actual prices at which banks have lent to or borrowed from one another. They are not transactions based, an omission that widens the scope for manipulation. Second, the bank’s estimate is supposed to be ring-fenced from other parts of the bank. But unfortunately walls have “holes” often incentivised by vested-interest in profit making by the interest-rate derivatives trading arm of the business. The total market in such derivatives has been estimated at US$554 trillion in 2011. So, even small changes can imply big profits. Indeed, it has been reported that each basis point (0.01%) movement in Libor could reap a net profit of “a couple of million US dollar.”

The lack of transparency in the Libor setting mechanism has tended to exacerbate this urge to cheat. Since the scandal, damning evidence has emerged from probes by regulators in the UK and US, including whistle blowing by employees in a number of banks covering a past period of at least five years. More are likely to emerge from investigations in other nations, including Canada, Japan, EU and Switzerland. The probes cover some of the largest banks, including reportedly Citigroup, JP Morgan Chase, UBS, HSBC and Deutsche Bank.

Why Barclays?

Based on what was since disclosed, the Libor scandal has set the stage for lawsuits and demands for more effective regulation the world over. It has led to renewed banker bashing and dented the reputation of the city of London. Barclays, a 300-year old British bank, is in the spotlight simply because it is the first bank to co-operate fully with regulators. It’s just the beginning a matter of time before others will be put on the dock. The disclosures and evidence appear damaging. They reveal unacceptable behaviour at Barclays. Two sorts of motivation are discernible.

First, there is manipulation of Libor to trap higher profits in trading. Its traders very brazenly pushed its own money market dealers to manipulate their submissions for fixing Libor, including colluding with counter-parties at other banks. Evidence point to cartel-like association with others to fiddle Libor, with the view to profiteering (or reduce losses) on their derivative exposures. The upshot is that the bank profited from this bad behaviour. Even Bob Diamond, the outgoing Barclays CEO, admitted this doctoring of Libor in favour of the bank’s trading positions was “reprehensible.”

Second, there is the rigging of Libor by submitting “lowered” rates at the onset of the credit crunch in 2007 when the authorities were perceived to be keen to bolster confidence in banks (to avoid bailouts) and keep credit flowing; while “higher” (but more realistic) rates submission would be regarded as a sign of its own financial weakness. It would appear in this context as some have argued that a “public good” of sorts was involved. In times of systemic banking crisis, regulators do have a clear motive for wanting a lower Libor. The rationale behind this approach was categorically invalidated by the Bank of England. Like it or not, Barclays has since been fined £290mil (US$450mil) by UK and US regulators for manipulating Libor (£60mil fine by the UK Financial Services Authority is the highest ever imposed even after a 30% discount because it co-operated).

Efforts at reform

Be that as it may, Libor is something of an anachronism, a throwback to a time long past when trust was more important than contract. Concern over Libor goes way back to the early 2008 when reform of the way it is determined was first mooted. BBA’s system is akin to an auction. After all, auctions are commonly used to find prices where none exist. It has many variants: from the “English” auction used to sell rare paintings to the on-line auction (as in e-Bay). In the end, every action aims to elicit committed price data from bidders.

As I see it, a more credible Libor fixing system would need four key changes: (i) use of actual lending rates; (ii) outlaw (penalise) false bidding bidders need to be committed to their price; (iii) encourage non-banks also to join in the process to avoid collusion and cartelisation; and (iv) intrusively monitor the process by an outside regulator to ensure tougher oversight.

However, there are many practical challenges to the realisation of a new and improved Libor. Millions of contracts that are Libor-linked may have to be rewritten. This will be difficult and a herculean exercise in the face of lawsuits and ongoing investigations. Critical to well-intentioned reform is the will to change. But with lawsuits and prosecutions gathering pace, the BBA and banking fraternity have little choice but to rework Libor now. As I understand it, because gathering real data can often pose real problems especially at times of financial stress, the most likely solution could be a hybrid. Here, banks would continue to submit estimated cost, but would be required to back them with as many actuals as feasible. To be transparent, they might need to be audited ex-post. Such blending could offer a practical way out.

Like it or not, the global banking industry possibly faces what the Economist has since dubbed as its “tobacco moment,” referring to litigation and settlement that cost the US tobacco industry more than US$200bil in 1988. Sure, actions representing a wide-range of plaintiffs have been launched. But, the legal machinery will grind slowly. Among the claimants are savers in bonds and other instruments linked to Libor (or its equivalent), especially those dealing directly with banks involved in setting the rate. The legal process will prove complicated, where proof of “harm” can get very involved. For the banks face asymmetric risk because they act most of the time as intermediaries those who have “lost” will sue, but banks will be unable to claim from others who “gained.” Much also depends on whether the regulator “press” them to pay compensation; or in the event legal settlements get so large as to require new bailouts (for those too big to fail), to protect them. What a mess.

What, then, are we to do?

Eighty years ago banker JP Morgan jr was reported to have remarked in the midst of the Great Depression: “Since we have not more power of knowing the future than any other men, we have made many mistakes (who has not during the past five years?), but our mistakes have been errors of judgement and not of principle.” Indeed, bankers have since gone overboard and made some serious mistakes, from crimes against time honoured principles to downright fraud. Manipulating Libor is unacceptable. So much so bankers have since lost the public trust. It’s about time to rebuild a robust but gentlemanly culture, based on the very best time-tested traditions of banking. They need to start right now.

WHAT ARE WE TO DO By TAN SRI LIN SEE-YAN

Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who speaks, writes and consults on economic and financial issues. Feedback is most welcome; email: starbizweek@thestar.com.my.

Asian banks review US ties


Cost will rise when tough new rules on derivatives come into force

SINGAPORE: Asian banks are reviewing relationships with their US counterparts to avoid being caught by tough new American rules on derivatives trading that are about to come into force.

From the start of next year, non-US banks that annually deal in at least US$8bil worth of products such as interest rate swaps with American counterparties are expected to be subject to new derivatives rules in the Dodd-Frank Act.

In practice that means they will need to register as swap dealers with US regulators and abide by their rules on capital requirements and risk management, all of which adds to costs.

“If I have the choice, I just don’t want to deal with a US person‘,” said a treasury manager at a regional Asian bank.

“We’re still looking at our compliance situation, but it may mean that in future I need to ask all my US counterparties if there’s a way they can change where they book their trades with us.”

A “US person” as defined by the regulation is a relatively broad term, intended by regulators to apply to any person or entity that will have an effect on American commerce.

The Dodd-Frank Act was spurred by the 2008 financial crisis and aims to impose tighter supervision of cross-border derivatives trade following incidents such as the loss-making trades by the socalled “London Whale” at JPMorgan’s UK office.

But some lawyers say even entities that deal in a relatively small amount of derivatives could be forced to execute trades on an electronic platform and put them through a central clearing house acceptable to American regulators.

That has prompted a knee-jerk reaction from some Asian institutions to consider cutting all their derivative trading relationships with US counterparties, anxious to avoid higher trading costs and the spotlight of American regulators.

In reality, few banks were likely in the long term to cut all trading with US banks given that they provided a lot of liquidity to the market, and it would be hard to remain active in the global markets without them, he added.

In Hong Kong, Singapore and Japan combined, around US$143.1bil of interest rate derivatives were traded every day in April 2010, according to the most recent figures from the Bank of International Settlements.

While still small compared with the US$1.2 trillion traded in the UK and the US$642bil in the United States, the turnover has almost tripled from the US$50.8bil recorded in 2004.

American banks are big players in global over-the-counter derivatives markets, with JPMorgan Chase & Co, Citigroup Inc, Goldman Sachs Group Inc, Morgan Stanley and Bank of America Corp accounting for about 37% of all outstanding contracts, according to the International Swaps and Derivatives Association.

Asian players have a smaller share, although Singapore banks DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank Ltd account for a large part of the S$282bil of interest rate swaps cleared at the Singapore Exchange since it launched its clearing service in November 2010, analysts estimate.

Lawyers say US banks operating in Asia are now rethinking how they structure themselves and handle their trades.

“US groups that want to remain competitive in the non-US market will need to develop a structure that enables them to trade in a way that does not scare their counterparties away,” said Theodore Paradise, a partner at law firm Davis Polk & Wardwell in Tokyo. – Reuters

Eurozone woes tilt financial power in Asia’s favour


LONDON: As European banks retrench to recover from the global financial meltdown, they are finding ready buyers in Asia for everything from loans to entire insurance and broking operations.

There are other tell-tale signs of a shift in power: this year’s two biggest initial public offerings after Facebook were launched not in the United States or Europe, but in Malaysia.

Yet perhaps what is more striking is that, with one or two exceptions, Asian financial firms are not doing more in Europe itself to capitalise on the eurozone’s festering debt and banking crisis.

Take China. The economy has more than doubled in size in five years. It has some of the biggest banks in the world.

And its appetite for snapping up natural resources is undiminished: witness last month’s US$15.1bil agreement by state oil company CNOOC Ltd to buy Canada’s Nexen Inc, the biggest foreign acquisition to date by a Chinese company.

When it comes to the financial sector, however, the glass is half-empty, not half-full, said Andre Loesekrug-Pietri, chairman of A Capital, a China-Europe investment fund.

“There’s a front-cover story every other month about China buying up the world, but China is still a very small player in international M&A,” he said.

David Marsh, co-founder of a forum in London that connects central banks and sovereign wealth funds with banks and asset managers, said the West no longer had a monopoly on innovation and dynamism in financial services.

But China was playing a long game, biding its time and waiting for bargains. With plenty of bankers and traders being made redundant, Chinese firms have the chance gradually to build up teams and expertise rather than making giant acquisitions.

“They’ll be much more clever than simply buying moribund banks at high prices: they’ll be buying people,” Marsh said.

“What we’re seeing now is just the precursor of a much bigger shift that will take place over the next 10 years, but it won’t happen in one fell swoop.”

China has not been completely asleep on the acquisitions front.

Two Chinese private equity funds are on the final shortlist of bidders for the asset management arm of Franco-Belgian financial group Dexia, a deal that could be worth 500 million euros or more.

And CITIC Securities has agreed to buy CLSA Asia-Pacific Markets, a highly regarded Hong Kong-based brokerage, from its French parent, Credit Agricole SA, in a two-stage transaction worth US$1.25bil.

The deal is symbolic. Whereas CITIC is China’s biggest brokerage, Credit Agricole is battling mounting losses in Greece, the epicenter of the eurozone crisis, where it owns the country’s sixth-largest bank, Emporiki.

“Distressed banks selling good assets always happens in a crisis like this. Banks which don’t want to raise capital by issuing new equity end up selling their offshore assets, and typically they sell the crown jewels,” said Ken Courtis, founding partner of Themes Investment Management and a former vice-chairman of Goldman Sachs Asia.

A clutch of other European financial institutions is also beating the retreat in Asia.

Britain’s Royal Bank of Scotland has offloaded some of its Asia-Pacific investment banking operations to Malaysia’s CIMB Group Holdings Bhd, while ING is selling its US$7bil Asia insurance business. Both banks had to be bailed out by their governments during the crisis.

Integrating independent-minded CLSA would be one of the biggest challenges for CITIC, Courtis said. Chinese financial institutions in general have a narrow bench of executives with the right linguistic and overseas management expertise – one reason why they are initially beefing up their offshore presence in more-or-less familiar Hong Kong, he said. Reuters

Julian Assange condemns WikiLeaks witch-hunt


Assange calls for an end to the ‘witch-hunt’

Julian Assange emerges from Ecuador’s London embassy to call on the US to end its ‘witch-hunt’ against WikiLeaks.

WikiLeaks founder Julian Assange has appeared on the balcony of the Ecuadorean embassy to ask US President Barack Obama to make his country “do the right thing” and “renounce its witch-hunt against WikiLeaks”.

“The United States must dissolve its FBI investigation,” he said. “The United States must vow that it will not seek to prosecute … our staff or our supporters. The US must pledge before the world that it will not pursue journalists for shining a light on the secret crimes of the powerful.

To my family and to my children, who have been denied their father; forgive me. We will be reunited soon.

“There must be no more foolish talk about prosecution of media organisations, be they WikiLeaks or The New York Times.”

Wikileaks founder Julian Assange makes a statement from the balcony of the Ecuador embassy in London.“End the witch-hunt” … WikiLeaks founder Julian Assange makes a statement from the balcony of the Ecuador embassy in London. Photo: Reuters

This was the closest Mr Assange came to asking that the US promise not to seek his extradition should he go to Sweden to face questioning over claims of sexual misconduct. He has not been charged and denies the allegations.

Earlier, one of his spokesmen had said that Mr Assange would consider accepting extradition to Sweden if the US would publicly pledge not to seek his extradition.Mr Assange and WikiLeaks outraged American authorities with the publication of thousands of confidential diplomatic cables.

WikiLeaks founder Julian Assange gestures after his statement to the media.WikiLeaks founder Julian Assange gestures after his statement to the media. Photo: AP

The WikiLeaks founder has been sheltering in the Ecuadorean embassy since June because he fears that if the UK sends him to Sweden, the Swedes might hand him over to America and he may face a potential death penalty related to espionage allegations.

Wearing a shirt and tie and sporting a new crew-cut, Mr Assange demanded that the US return to its “revolutionary values” before it lurched over a precipice into which it dragged “all of us”: “A dangerous and oppressive world in which journalists fall silent under the threat of prosecution and citizens must whisper in the dark”.

The US “war on whistleblowers” must end, he said, making a forceful call for the release of Bradley Manning, an American soldier detained over espionage claims for allegedly leaking material to WikiLeaks.

To loud cheers from dozens of supporters – held back by more than 40 police – Mr Assange said the United Nations had found that Mr Manning had endured months of “torturous detention” at Quantico and was about to have his 815th day in jail without trial.

“The regular maximum is 120 days,” Mr Assange said, calling Mr Manning “the world’s foremost political prisoner”.

He issued a series of thank yous, including “to the people of the US, the UK, Sweden and Australia who have supported me even when their governments have not”.

He  thanked all the South American nations that have rallied behind Ecuador in outrage over a letter that has been seen as a threat by the British Foreign Office to use police to storm the Ecuadorean embassy to retrieve Assange: “Argentina, Bolivia, Brazil, Mexico, Nicaragua, Peru, Venezuela”.

Mr Assange also thanked supporters who had come out for a vigil in the dark last Wednesday night when police entered the building that houses the embassy.

“Inside this embassy after dark I could hear teams of police swarming up through the building through its internal fire escape”. But he said he knew supporters were watching outside.

He finished with,  “To my family and to my children, who have been denied their father; forgive me. We will be reunited soon”.

South American nations on Sunday backed Ecuador’s decision to grant asylum to Mr Assange, urging dialogue to end the crisis pitting Quito against London.

Foreign ministers of the Union of South American Nations, meeting in Ecuador’s biggest city Guayaquil, expressed “solidarity” with Quito and urged the parties “to pursue dialogue in search of a mutually acceptable solution,” according to a joint statement.

Karen Kissane, London with AFP  Newscribe : get free news in real time

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China’s ‘most dangerous man’ shot dead near mum’s home


After an eight-year manhunt across four provinces involving tens of thousands of police officers, China‘s most-wanted criminal was shot dead yesterday, 14 kilometres from his mother’s home.

Zhou Kehua, 42, was cornered in an alley behind a shoe shop in the central city of Chongqing and opened fire. He was shot in the head at close range. At least one policeman was “lightly injured” in the gun battle.

After so many murders, he knew he would get the death penalty, so there was no moral struggle in his mind.

Zhou had been on the run since 2004, evading capture despite being the target of one of the largest manhunts mounted in China.

Eight years on the run … Zhou Kehua appears on a wanted poster. Photo: AFP

By the end, the combined value of all the rewards placed on his head had risen to 5.4 million yuan ($AU800,000) and wanted posters had been pinned up as far afield as Shanghai, more than 1600 kilometres from his home.

Gun crime is extremely rare in China, where firearms are strictly controlled, but Zhou had killed a total of nine people, including one policeman, in a series of armed robberies.He went for bank customers withdrawing large sums of cash, following his victims and shooting them in the head before making a swift getaway.

“He remained very calm after the murders and would decide the quickest way to escape,” said Pi Yijun, a criminologist at China University of Political Science and Law in Beijing. “He would do his homework by staying at a bank and observing its customers, working out the best place to strike. After so many murders, he knew he would get the death penalty, so there was no moral struggle in his mind.”

Zhou would lie low for long periods, disappearing at one stage for more than four years, between 2005 and 2009.

He resurfaced last Friday for the first time since January, killing a woman outside a branch of the Bank of China in Shapingba, a district of Chongqing.

The local authorities quickly mounted an enormous manhunt, calling back all police on leave and mobilising the local army. However, after combing Gele Mountain, only a ragged green T-shirt and two cigarette cartons were found. China Central Television (CCTV) said it was thought that the manhunt, which was widely publicised in the media, had been a ruse to give Zhou a false sense of security.

In fact, he had been spotted in a department store in Chongqing on August 11, leading police to believe he had remained close to the scene of his last crime, rather than retreating to his mountain hideout.

Quietly, four-man teams of plain-clothes police moved through the city to track him down. Eventually a resident in Tongjiaqiao, near his mother’s home, reported him to the police yesterday morning, collecting a 600,000 yuan reward. Zhou’s father died last August, but his mother lives in a three-storey house and has been under constant surveillance since January.

His ex-wife lives in a neighbouring town with their 13-year-old son. Zhou is thought to have visited them at the beginning of the year after committing a murder and stealing 200,000 yuan in Nanjing.

Two Chinese newspapers disputed the account of Zhou’s final moments.

The Chongqing Times said he had committed suicide and the police had merely found his body.

The Changsha Evening News, however, said that he had turned the gun on himself after being shot twice by police.

The Telegraph, London Newscribe : get free news in real time

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