THE BRITISH financial regulator warned Barclays about its “aggressive” business practices that persistently sought to push at the rules just four months ago.
The chairman of the Financial Services Authority, Lord Adair Turner, made the strongly worded charge in a letter to Barclays chairman Marcus Agius in April.
“I wished to bring to your attention our concerns about the cumulative impression created by a pattern of behaviour over the last few years, in which Barclays often seems to be seeking to gain advantage through the use of complex structures, or through arguing for regulatory approaches which are at the aggressive end of interpretation of the relevant rules,” Lord Turner wrote.
Barclays damaged its reputation by aggressive tax management, he added. “The net impact has clearly been unfavourable to the degree of external trust in Barclays’ approach to issues such as tax, regulation and accounting.
“The cumulative effect of the examples set out above has been to leave us with an impression that Barclays has a tendency continually to seek advantage from complex structures or favourable regulatory interpretations.”
The text of the letter was released shortly before Mr Agius appeared before the House of Commons treasury select committee yesterday.
MPs said the letter cast doubt on the veracity of the evidence given by Bob Diamond, the former chief executive of Barclays, who appeared before them last week and who claimed the bank had a good relationship with the regulator. Describing it as “an extraordinary letter”, Labour MP John Mann said Mr Diamond had “calculatedly and deliberately misled” MPs because it “cannot be true that forgot this letter”.
He said the letter displayed the FSA’s concerns about Barclays’ offshore multi-billion tax-avoidance creation, Protium, which was “a convoluted attempt to portray a favourable accounting result”.
Risky assets were valued “at the aggressive end of the acceptable spectrum”, while Lord Turner indicated that Barclays had misled EU banking regulators when they investigated the health of EU banks. Barclays had offered “a confusing and potentially misleading impression” to the European Banking Authority, he said, adding that the bank repeatedly argued for softer capital rules.
Mr Agius denied that this marked a breakdown of trust with the FSA, saying robust expressions take place in the normal course of exchanges.
Mr Agius said he became aware in early 2011 of the allegations that the bank’s staff had been involved in the manipulation of the Libor inter-bank lending rate in 2008. However, he said Mr Diamond was not told about it, nor was he involved in the subsequent £100 million (€126.5 million) internal investigation launched by Barclays because he was a potential witness.
Mr Agius said he only became aware early this year of the note Mr Diamond had made of a telephone conversation he had with Bank of England deputy governor Paul Tucker in October 2008. In it, Mr Diamond claimed Mr Tucker had told him that “senior Whitehall figures” wanted Barclays to reduce its daily Libor quotation – a charge Mr Tucker denied firmly when he appeared before MPs on Monday.
The earlier manipulation by Barclays traders of the Libor in 2005 – where they increased, or decreased it to maximise profits on contracts – should have been prevented or detected quickly. However, he said the 2008 episode was different as Barclays’ Libor rate, which was initially higher than that offered by other banks, “made us look like we were having more difficulty in funding than we were”.
