Former Barclays CEO Lambasted in Parliament as Other Banks Brace for Fallout
By DAVID ENRICH And SARA SCHAEFER MUÑOZ
U.K. lawmakers grilled former Barclays CEO Robert Diamond for three hours about what he knew about the rating-fixing scandal that led to his resignation earlier this week. Sara Schaefer Munoz watched his performance. Photo: Reuters
LONDON—A day after abruptly resigning amid a mushrooming scandal over interest-rate manipulation, former Barclays BARC.LN -0.45% PLC chief Robert Diamond on Wednesday was assailed by British lawmakers for the bank's actions, in a preview of the scrutiny likely to lie ahead for other big lenders that are under investigation.
Barclays last week agreed to pay $453 million to settle U.S. and British authorities' allegations that the British bank tried to manipulate the London interbank offered rate, or Libor, which is the benchmark for interest rates on trillions of dollars of loans to individuals and businesses around the world.
Barclays executives initially believed they could ride out any resulting fallout from the settlement and accompanying admission that Barclays had acted improperly. But by Tuesday, the scandal had prompted the resignations of Mr. Diamond, Barclays Chairman Marcus Agius and Chief Operating Officer Jerry del Missier, some of the British banking industry's most prominent figures. No individuals were charged.
With British politicians on all sides calling for further investigations, Mr. Diamond faced hostile questions from a parliamentary committee. Lawmakers expressed skepticism about his claim that he wasn't aware until recently of his subordinates' improprieties.
"Either you were complicit, grossly negligent or incompetent," John Mann, a Labour lawmaker, told Mr. Diamond.
After a pause, Mr. Diamond asked, "Is there a question?"
The Libor affair isn't solely a Barclays problem. In the U.K., the scandal has quickly touched other top figures in the British political and finance establishment. That is partly because Mr. Diamond sought to deflect some of the blame by saying that Mr. del Missier, one of his deputies, believed that by lowering Barclays's Libor submissions he was acting at the behest of a top Bank of England official, Paul Tucker. That allegation is explosive, since Mr. Tucker has been regarded as a front-runner to become the central bank's next governor.
Barclays won't be the only bank put through the wringer over the question of Libor manipulation, which first emerged as an issue four years ago when a series of Wall Street Journal articles raised questions about possible fudging involving the interest-rate benchmark.
Libor, a measure of how much banks have to pay to borrow from each other, is drawn up daily following submissions from a group of 16 giant banks, which report their borrowing costs for loans of different maturities and in different currencies.
Investigations of more than a dozen banks—by authorities on three continents—are starting to unearth evidence that some banks improperly sought to manipulate Libor. Regulators say that some banks, including Barclays, submitted artificially low readings during the early days of the financial crisis as part of an effort to mask the financial problems they were encountering.
Analysts say the industry may have to shell out billions of dollars to settle the cases and other bank chiefs could find themselves in the cross hairs.
Wednesday's three-hour parliamentary hearing didn't yield much new information about what some industry executives say was a widespread practice of submitting faulty Libor data. It also didn't fully clarify the roles played by Mr. Tucker or British government officials.
Wednesday's three-hour parliamentary hearing didn't yield much new information about what some industry executives say was a widespread practice of submitting faulty Libor data. It also didn't fully clarify the roles played by Mr. Tucker or British government officials.
At Wednesday's hearing, Mr. Diamond repeatedly condemned the "reprehensible" behavior of a few employees, saying, "It puts a real stain on the organization." But he argued that their actions shouldn't undermine the entire company.
His explanations were rejected, as was his protocol. One lawmaker, Teresa Pearce, tweeted: "Really annoying that Mr Diamond is using our first names. so rude."
Besides roiling London's tightknit financial hub, the fracas highlights the power the British government continues to wield over the financial sector, years after taking partial control over two teetering lenders.
Barclays's chairman, Mr. Agius, announced his resignation Monday in an attempt to defuse the billowing political outrage. That evening, the governor of the Bank of England and the chairman of the Financial Services Authority each contacted Mr. Agius. They both delivered the message that Mr. Diamond needed to step down to restore confidence in the bank, according to people familiar with the matter. Mr. Diamond resigned early Tuesday.
Barclays is the only bank so far to resolve Libor-fixing allegations, but roughly a dozen banks have acknowledged being under criminal or civil investigation in various countries in the matter.
In its settlement with U.S. and British authorities, Barclays acknowledged that, starting in 2005, traders submitted erroneous data about its borrowing costs, in what was then an effort by some employees to boost profits on the positions they held. Regulators uncovered emails, instant messages and phone calls in which Barclays traders and other employees openly discussed their tactics.
But by 2008, with the financial crisis intensifying, Barclays was routinely submitting some of the highest cost-of-borrowing readings of any bank. Executives at Barclays, which was financially healthier than some banks that were reporting lower borrowing costs, believed this was because rivals were reporting bogus data to conceal their financial problems. Mr. Diamond and other executives repeatedly complained to regulators.
Barclays officials had hoped that by settling early, they would win praise for full cooperation and for resolving uncertainty about the potentially hefty price tag of any settlement.
Mr. Diamond and his circle thought the story could fizzle after a single news cycle, according to people familiar with the matter. Some board members were especially hopeful because Mr. Diamond and three top lieutenants agreed, as part of the settlement, to forgo their 2012 bonuses.
It was a familiar attitude to some Barclays executives, who coined the term "Bob-timism" to reflect their boss's eternally upbeat perspective.
Just five days before the settlement, Barclays promoted an investment-banking executive, Mr. del Missier, to chief operating officer. The FSA signed off on the promotion. On Tuesday, Mr. del Missier, now publicly identified as being at the center of the Libor scandal, resigned.
Last week, as politicians were calling for Mr. Diamond's head, he shrugged off such concerns. In a meeting with Morgan Stanley MS +1.14% analysts, according to a person who attended, he argued that his job was safe, partly because the FSA had already been aware of Barclays's involvement in the Libor allegations in autumn 2010 when the regulator approved his promotion to CEO.
Mr. Diamond and his staff spent last weekend holed up at Barclays's offices in London's Canary Wharf district preparing a video to express confidence the bank could weather the furor.
On Monday, Mr. Agius said he would step down, fueling executives' optimism Mr. Diamond could hang onto his own job, said people familiar with the matter. But by the end of the day, Mr. Diamond realized that wasn't realistic and informed Mr. Agius he too was quitting.
On Tuesday, Barclays initiated a damage-control effort. It released an October 2008 email from Mr. Diamond to two colleagues in which he described a phone call from the Bank of England's Mr. Tucker. According to Mr. Diamond's notes, Mr. Tucker said unidentified senior British government officials were concerned that Barclays was consistently reporting above-average Libor readings
"Mr. Tucker stated…that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently," according to Mr. Diamond's notes. Mr. del Missier, to whom Mr. Diamond emailed his notes, interpreted them as a Bank of England instruction for Barclays to submit lower Libor readings, according to Barclays.
Mr. del Missier couldn't be reached on Wednesday. A Bank of England spokesman declined to comment on Mr. Tucker's behalf.
The central bank said Mr. Tucker has requested an invitation to appear before the Parliamentary panel Mr. Diamond faced Wednesday "in order to clarify" the situation.
By: online.wsj.com
