Barclays' Diamond faces grilling in parliament

LONDON Tue Jul 3, 2012 11:47pm BST

1 of 5. Barclays Plc President Bob Diamond waits to pose for photographs after being named as the company's next chief executive officer at a bank branch near their Canary Wharf headquarters in London in this September 7, 2010 file photograph.

Credit: Reuters/Dylan Martinez/Files

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LONDON (Reuters) - Bob Diamond squares up to critical British MPs on Wednesday, a day after quitting as Barclays' chief executive over the Libor interest rate scandal, potentially dragging the Bank of England, government and rival banks deeper into the affair.

Diamond's testimony to a parliamentary inquiry could prove politically explosive; on Tuesday, Barclays published a 2008 internal memo from him which fellow managers understood to mean that the Bank and government might approve if they manipulated the Libor rate at the height of the banking crisis.

The American banker is scheduled to appear before the cross-party Treasury Select Committee at 2 p.m..

Though his compatriots across the Atlantic will be celebrating a holiday marking their independence from Britain, Diamond said he "looked forward to fulfilling" his appointment with the parliament in London, despite having already resigned.

Barclays' defence tactic of claiming official sanction for manipulating a rate at a time of market crisis drew a sceptical response on Tuesday from the man who was British chancellor at the time. Alistair Darling said he could not imagine the central bank asking Barclays to take such action and said his department would never "suggest wrongdoing like this".

Britain's third-biggest bank was fined nearly half a billion dollars for its part in manipulating a key interest rate, the London Interbank Offered Rate, or Libor, which underpins financial transactions worth an estimated $360 trillion (229.52 trillion pounds).

Diamond is the third senior Barclays official to quit over the affair this week, following fines the bank agreed to pay last week of $453 million to British and U.S. authorities.

Barclays said in its submission that it was "ironic" that there had been such an intense focus on it alone, because the company had been the first to settle with authorities over Libor in the midst of a global investigation of the banking industry.

BANKING SCANDALS

The Libor scandal comes at a time of increasing anger in Britain against the banks, already widely excoriated for their role in the financial crisis of the past few years.

Politicians and newspapers have seized on the Libor scandal - which exposed macho e-mails between bankers congratulating each other with offers of champagne for helping to fiddle figures - as an example of a culture of wrongdoing in an industry that only stayed afloat with huge taxpayer bailouts.

Libor is a market benchmark published by the British Bankers Association (BBA) based on a survey of what London banks tell its compilers they have to pay to borrow from their peers, in various currencies and for different periods. It is used to price financial contracts around the world, ranging from complex interbank transactions to consumer mortgages and student loans.

In the four years to 2009, when the authorities believe banks were lying about their borrowing costs to influence the Libor benchmark, some customers may have benefited, and others lost out. Some bankers may have manipulated the rate to profit in certain transactions. Much of the focus, however, has been on late 2008, when the Lehman Brothers collapse in the United States pushed global financial markets into crisis.

In that period, high borrowing costs for banks reflected a loss of confidence that managers - and governments - were trying to shore up, creating a temptation for bankers to report lower interest rates to the BBA than they were actually having to pay.

OFFICIAL ENCOURAGEMENT?

The 2008 memo suggests that Barclays was given implicit encouragement by the deputy governor of the Bank, Paul Tucker, to massage its contributions to setting Libor lower during the peak of the financial crisis to present a better picture of Barclays' financial health.

According to the memo, Tucker told Diamond, then head of Barclays' investment bank, he had received calls about the Libor rate and banks' submission for it from senior government officials. "It did not always need to be the case that we appeared as high as we have recently," Diamond said he had been told in a note to then chief executive of Barclays.

The Bank declined to comment.

Former Chancellor of the Exchequer Darling was sceptical of the Barclays defence: "What Bob Diamond or Barclays appear to be saying is that the Bank (of England) told them to do this," he told Channel Four television.

"I would find it absolutely astonishing that the Bank would ever make such a suggestion and equally I can think of no circumstances that anyone, certainly in the department which I was responsible for - the Treasury - would ever suggest wrongdoing like this," said Darling, whose centre-left Labour party is now in opposition.

Barclays agreement to pay fines last week increased pressure on other banks to cooperate in a probe which could cost the industry billions of dollars.

The Libor figures submitted by banks are compiled by Thomson Reuters, parent company of Reuters, on behalf of the BBA.

(Reporting by Matt Scuffham; Editing by Giles Elgood)

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Comments (4)
Herby wrote:
Okay then, now we are getting somewhere, Marcus and Bob have gone, now it is essential that Angela Knight of the BBA quits today and her replacement Anthony Browne who was to replace her in September anyway must relinquish that position as the man who chose him was no other than Marcus Agius who was also Chairman of BBA.

Next we want criminal proceedings to start immediately on the grounds of intent to defraud, this is covered by criminal law under the SFO and has nothing to do with the FSA who yet again have proven themselves worthless.

Next a Public enquiry, not the one announced yesterday where a tory public schoolboy, appointed by a tory public schoolboy to investigate tory public schoolboys, in the case of Marcus Agius, well he will walk straight into another job via his Rothschild dynasty wife. I am not inferring any king of ‘school tie’ requirement for banking jobs, but I am saying it all looks like a fix and after the expenses scandal that is why it must be a Public enquiry.

Jul 03, 2012 9:27am BST  --  Report as abuse
About-Face wrote:
Singapore – watch out, parachutist landing in Marina Bay Financial District.These outcasts could soon become this island republic’s talents.
There should be an international moratorium in barring these executives from ever holding a directorship in any company that has other people’s money as share capital in any industry, for the rest of their natural life.
They are free to use their own money to wager.

Jul 03, 2012 1:24pm BST  --  Report as abuse
margaretbowker wrote:
The frenetic autumn of 2008 still comes to mind in graphic detail, but don’t let past errors cast a shadow over one of the most important global financial centres, The City. Handle this issue efficiently but also as calmly as possible. Infighting is pointless, when things are serious enough already.

Jul 03, 2012 11:33pm BST  --  Report as abuse
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