Monday, December 23

Interest Rate Rigging Forces Resignation of Barclay’s Bank Chairman

Marcus Agius is expected to say he is “truly sorry” for the scandal, which has dealt a “devastating blow” to the bank. Meanwhile, Lord Turner of Ecchinswell, the head of the Financial Services Authority, said “more heads will roll” at

badly behaving banks.

 

Yesterday it emerged that Barclays stepped up its efforts to rig interest rates after Bob Diamond, its chief executive, personally spoke to the deputy governor of the Bank of England. Bob Diamond had a conversation with Paul Tucker about how much Barclays was claiming it had to pay to borrow money during the financial crisis in 2008.

After Mr Diamond spoke to Mr Tucker, Barclays staff came to believe the Bank of England wanted them to falsify this data — which was used to calculate Libor, the interest rate that banks pay to each other.

The bank’s traders then escalated their secret attempts to manipulate the markets and make it appear that the bank was paying less to borrow money than was actually the case, documents show. Sources at both banks said this was the result of a “misunderstanding” and insisted that Mr Tucker had not sanctioned Barclays’ actions.

At the time, the Bank of England was keen to see a lower Libor rate, as that would have been a positive sign in the depths of the credit crunch.

The disclosure increases the pressure on Mr Diamond, who has now been put at the heart of discussions about the fixing of Libor.

When he gives evidence to MPs this week the bank chief will also have to explain why his employees were left with the understanding they had the Bank of England’s blessing.

As the board of Barclays called an emergency meeting last night, there were calls for a criminal inquiry into the bank by Vince Cable, the Business Secretary, and Lord Blair of Boughton, the former Metropolitan Police commissioner.

Mr Diamond is also facing calls to step down over his failure to spot the scandal, which may have caused banks to charge mortgage holders, credit card users and businesses too much for billions of pounds in loans.

Barclays was last week fined £290 million for its role in the affair. Other high street banks are expected to face heavy penalties for similar wrongdoing.

Mr Diamond is likely to face calls to issue a full apology when he is questioned by the Treasury committee on Wednesday. Sources confirmed he would be asked exactly what he talked about with Mr Tucker, the second most senior figure in the Bank of England, during the crucial phone call about Libor in October 2008.

MPs will be especially keen to know how a confused message was passed on to Barclays traders, who ended up “escalating” the rate-rigging scandal soon afterwards.

Although the bank chief may have to give evidence under oath, he is expected to stonewall many questions for legal reasons. John Mann, an MP on the Treasury committee, said Mr Diamond would face tough questions about the conversation.

“I’m certain that issue will come up,” he said. “We will certainly want answers as to if Bob Diamond has been hands-on and it will be surprising if he wasn’t. We want to know exactly what he was doing.”

Both Barclays and the Bank admit that a conversation took place about Libor but deny there was any instruction to lower the rate. They claim that traders misunderstood directions from their superiors about how they should deal with Libor.

The Financial Services Authority accepted the explanation that instructions from the bank’s executives were misinterpreted by more junior employees.

“No instruction for Barclays to lower its Libor submissions was given during this telephone conversation,” the FSA said.

“However, as the substance of the telephone conversation was relayed down the chain of command at Barclays, a misunderstanding or miscommunication occurred. This meant that Barclays’ submitters believed mistakenly that they were operating under an instruction from the Bank of England as conveyed by senior management to reduce Barclays’ Libor submissions.”

US regulators believe that a member of Barclays’ senior management team was responsible for the message that the bank’s data needed to be lower.

One trader emailed his boss at the time to say: “Following on from my conversation with you I will reluctantly, gradually and artificially get my Libors in line with the rest of the contributors as requested. I disagree with this approach as you are well aware. I will be contributing rates which are nowhere near the clearing rates for unsecured cash and therefore will not be posting honest prices.”

At the time of Mr Diamond’s conversation with Mr Tucker, the Bank of England was keen to see Libor reduced, as a higher rate was a sign that the credit crunch was strangling lending between the banks.

However, the Bank of England last night insisted it was “nonsense” to suggest that it was aware of any impropriety in the setting of Libor.

A spokesman added: “If we had been aware of attempts to manipulate Libor we would have treated them very seriously.”

Several other companies are also expected to settle with the regulators, after George Osborne, the Chancellor, disclosed that the Royal Bank of Scotland was among the dozen banks or so under investigation.

It emerged over the weekend that RBS has sacked up to 10 traders in connection with Libor fixing.

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