Libor case shows 'Barclays flawed'

Sat, Aug 18, 2012, 01:00

Company culture at Barclays was "deeply flawed" and the Bank of England's hand in ditching its chief executive Bob Diamond was hard to justify, a UK parliamentary report into the "disgraceful" rigging of Libor interest rates said today.

Few emerge unscathed from the Treasury Select Committee's 300-page report, based on a string of high-profile hearings after Barclays was fined a record £288 million on June 27th for manipulating the London Interbank Offered Rate or Libor.

"Such behaviour would only be possible if the management of the bank turned a blind eye to the culture of the trading floor," the report said.

"The standards and culture of Barclays, and banking more widely, are in a poor state," it said, adding it was unlikely the bank acted alone.

Barclays is the first of several banks expected to be fined for rigging a rate which forms a reference point for home loans, credit cards and other financial transactions worth over $350 trillion globally.

The report slammed the UK's Financial Services Authority (FSA) watchdog for being behind the curve, giving ammunition to London's critics by starting its own formal probe into Libor setting two years after US authorities had kicked off theirs.

It said the delay contributed to the perceived weakness of London in regulating financial markets and recommended many reforms, several of which are already being looked at elsewhere, such as tougher penalties and oversight.

The FSA responded that its managing director Martin Wheatley will consider the report's findings in his government-commissioned review of Libor due to be published in September.

The government also welcomed the report and would consider any necessary legislative changes called for by Wheatley.

The FSA and US authorities are still probing HSBC, Royal Bank of Scotland, Lloyds and several non-UK banks in connection with possible manipulation.

Mr Diamond, Barclays' chairman Marcus Agius and chief operating officer Jerry del Missier all quit in July.

The report criticised Barclays' board for several failings and Mr Diamond himself, saying his testimony to parliament was unforthcoming and selective in parts, and fell well short of the candour and frankness expected.

A focus of the hearings was a conversation between Mr Diamond and the Bank of England deputy governor Paul Tucker in October 2008 when markets were in meltdown after the collapse of US bank Lehman Brothers the previous month.

They agreed that the conversation did not amount to directing Barclays to "low ball" its Libor rate submission in a bid to show it had no problem borrowing from other banks.

The heavy public emphasis by Barclays on this conversation may have been a "smokescreen" to distract from more serious failings at the lender and made no fundamental difference to the bank's behaviour, the report said.

"Barclays did not need a nod, a wink or any signal from the Bank to lower artificially their Libor submissions. The bank was already well practised in doing this," it said.