The Wall Street Journal uses an interesting bit of enterprise reporting to suggest on A1 which banks are lying about their borrowing costs in order to make themselves appear healthier than they really are.

The story follows the Journal’s report last month that questions were being raised about Libor—the London interbank-offered rate—which measures how much banks charge to lend to one another.

It’s not much of a surprise that Citigroup comes out worst of all, with the Journal’s analysis suggesting it’s low-balling its borrowing costs by 0.83 percentage points. Why do we care?

Confidence in Libor matters, because the rate system plays a vital role in the global economy. Central bankers follow it closely as a barometer of the banking system’s health, and to decide how much to adjust interest rates to keep their economies growing. Payments on nearly $90 trillion in dollar-denominated mortgage loans, corporate debt and financial contracts rise and fall according to Libor’s movements….

At times of market turmoil, banks face a dilemma. If any bank submits a much higher rate than its peers, it risks looking like it’s in financial trouble. So banks have an incentive to play it safe by reporting something similar—which would cause the reported rates to cluster together.

The WSJ drops a couple of paragraphs of caveats about its analysis, which used default-insurance prices to project what Libor costs should be, but it says it had three different academics review its methods. One bank, WestLB, reported borrowing costs that were the same as Credit Suisse, even though the default-insurance market was pricing its risk of default as twice that of the Swiss giant. That doesn’t make any sense.

And the Journal scoops that another more troubled Swiss bank, UBS, underreported its borrowing rate by 0.12 percentage points last month to put it “in line with all the other panel banks.” UBS couldn’t even come up with a comment.

Interestingly, after the Journal’s report last month about Libor, rates jumped substantially. Its analysis reflects that, too, showing that rates were too low by about 0.25 percentage points before last month’s article, but 0.15 after it.

Sugar deal not so sweet

The New York Times reports on A1 that employees of U.S. Sugar say the company is cheating them out of money by selling company shares in their retirement plans for “a much lower price than they could have received.” To top it off, they say U.S. Sugar execs made out like bandits in the deal.

U.S. Sugar has a private employee stock ownership plan similar to the structure Sam Zell used to take Tribune Company private, and the Times says the problems at U.S. Sugar could occur at the other ESOPS around the country—which number some 10,000.

Basically, the suit accuses the Mott family, which founded U.S. Sugar and still exerts control over the company through the chairmanship, of “scheming to enrich themselves by buying back workers’ shares on the cheap.” At one point retiring workers’ shares were being cashed out at $194 a share while the company had two outside offers to buy shares at $293 apiece, which the board rejected. This year, it suspended its dividend, too.

The Times reports that the company used to be known for its paternalistic culture.

But that homey culture did not survive the tide of globalization. The North American Free Trade Agreement raised the prospect of a flood of cheap sugar from Mexico and other countries with low wages. U.S. Sugar scrambled to lower its costs.

Ellen Simms, U.S. Sugar’s former comptroller, said that when the company had to trim its payroll, it seemed to choose people with many years at the company.

“It was very obvious, with few exceptions, that they were targeting the employees who had been there the most time and who had the most ESOP shares,” she said. She resigned in protest in 2004.

Meanwhile, the falling stock price reported in the appraisals was a boon to the company, she said, because it made it cheaper to buy out the workers.

This year, U.S. Sugar banned its employee shareholders from its annual meeting because their shares are technically held by the ESOP.



Dow Chemical is raising its prices 20 percent because of higher energy costs, the Journal and the Financial Times report.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.