Barclays
market manipulation scandal spreads
More
global banks are being investigated for the alleged financial market
manipulation that led to fines of $US453 million against Barclays
Bank, British Treasury chief George Osborne said today, driving
financial stocks lower.
29
June, 2012
The
day before, US and British regulators fined Barclays for manipulating
the interest rate the London interbank offered rate (LIBOR) to its
advantage between 2005 and 2009. The rate is used to price mortgages
and consumer loans.
Osborne
said Barclays was not the only bank to be involved in market fixing.
Beyond the UK, there are also investigations in several countries
involving numerous global banking groups.
The
banks' share price fell sharply as investors expected hefty fines and
tighter regulation. Barclays shares closed down 15.5 per cent, RBS
11.5 per cent, HSBC 2.6 per cent and Lloyds Banking Group 3.9 per
cent.
Britain's
Financial Services Authority cited evidence that Barclays traders
were, in some cases, in touch with people in other banks.
"Banks
were clearly acting in concert," said Andrew Tyrie, a British
lawmaker who chairs the influential Treasury Committee in the House
of Commons. "I fear it's not going to be the end of the story,
that we are going to find that other banks have been involved."
Tyrie
said his committee would summon Barclays chief executive Bob Diamond
to explain what happened at the bank.
Though
Diamond has decided to waive his 2012 bonus in the wake of the fines,
he's facing calls to step down.
"If
Bob Diamond had a scintilla of shame, he would resign," said
Matthew Oakshott, a member of the House of Lords. "If Barclays'
board had an inch of backbone between them, they would sack him."
Prime
Minister David Cameron, when asked whether Diamond should resign,
said he thinks "the whole management team have got some serious
questions to answer. Let them answer those questions first."
The
massive fines are unlikely to be the end of the pain for Barclays.
The cost of lawsuits related to the LIBOR scandal will likely be
bigger, said Sandy Chen, banking analyst at Cenkos Securities.
"Since
Royal Bank of Scotland, HSBC and Lloyds Banking Group have also been
named in lawsuits, we expect they will also face significant fines
and damages. We are penciling in multi-year provisions that could run
into the billions," Chen said.
The
LIBOR is an average rate set by banks each morning that measures how
much they're going to charge each other for loans. That rate, in
turn, affects returns on complex products such as interest rate
derivatives contracts.
"These
contracts may sound exotic but they are the bread and butter of our
financial system and are used by businesses and public authorities
every day, and they affect the mortgage payments and loan rates of
millions of families and hundreds of thousands of firms, large and
small," Osborne said.
The
US Justice Department said Barclays would not face criminal
prosecution, subject to certain conditions, but individual employees
or officers could be prosecuted.
Diamond
waived any bonus for this year, as did finance director Chris Lucas,
chief operating officer Jerry del Missier and Rich Ricci, the chief
executive of corporate and investment banking. Diamond said the
decision reflected "our collective responsibility as leaders."
Martin
Taylor, who was CEO of Barclays between 1995 and 1998, said the
bank's board will have to make a decision whether Diamond can carry
on in his post.
Though
Taylor does not believe Diamond ordered anyone to fiddle the rates,
and thinks Diamond should stay if he can "help clean out the
stables," he told BBC radio that only the board can make that
judgment.
The
traders involved in the manipulations worked in Barclays Capital, the
investment bank which Diamond headed between 2005 and 2009.
Former
Barclays chief Taylor said he was confident that Diamond hadn't
sanctioned the misbehavior in the unit, but added that the company's
culture might have been a factor behind the misdemeanors.
"Bob
runs an extraordinarily competitive and aggressive ship, and that is
one reason why Barclays Capital has been very successful in the first
decade of the century," Taylor said.
"And
I think that when people are pushed to go to the limit, you know what
traders are like, they sometimes go beyond it. They don't need to
have an instruction from headquarters to go beyond it, they think it
is what the bank might expect, perhaps."
"Somebody
at senior level somewhere will certainly have known. I can't believe
that Barclays haven't identified who that is," Taylor added.
Rotten
to the Core: Barclays Paying $453 Million to Settle Libor Probe
Cryptogon,
June
28th, 2012
U.K.
bank Barclays will pay $453 million to U.S. and British authorities
to settle allegations that it manipulated key interest rates,
increasing pressure on other banks to cooperate in a probe that could
cost the financial industry billions of dollars.
The
settlement raises fresh questions about the reliability of the London
interbank offered rate, or Libor, which underpins some $360 trillion
of loans and financial contracts.
The
attempted manipulation, which according to authorities took place
from 2005 through 2009, meant that millions of borrowers paid too
little or too much interest on their debt.
The
U.S. government implicated senior executives at Barclays in its
settlement. It cited reams of emails that showed how the bank sought
to move Libor rates to profit on trades and to hide its high
borrowing costs during the financial crisis.
Barclays
Chief Executive Bob Diamond acknowledged on Wednesday that the
settlement would damage customer trust in the bank. He said he and
other senior executives would forgo their bonuses this year. Much of
the improper trading and manipulation occurred under the watch of
Diamond, a fixed-income trader who replaced John Varley as CEO in
2011.
Libor
underlies everything from derivatives trades to U.S. consumer credit
card rates to loans as far afield as those financing Turkish phone
networks. Barclays also tried to manipulate Euribor, a separately
managed series of euro-denominated rates.
Exclusive:
Banks Braced For New Mis-selling Scandal
The
FSA is set to reveal evidence that small businesses have been victims
of inappropriate selling of interest rate swap products.
By
Mark Kleinman, City editor
28
June
Barclays
will tomorrow be drawn into another huge City mis-selling scandal
that threatens to intensify the pressure on Bob Diamond, its
under-fire chief executive.
I
can reveal that the Financial Services Authority (FSA) is preparing a
statement revealing it has uncovered evidence that many small
business customers (SMEs) were the victims of inappropriate selling
of interest rate swap products and that the major high street banks
will write to every customer who was sold them.
The
City regulator is in talks today with the major banks about its
proposed statement, which is being scheduled for tomorrow morning. It
could lead to another compensation bill for the country’s biggest
banks running potentially to hundreds of millions or even billions of
pounds.
I’m
also told that the banks may agree to a moratorium on the sale of the
swaps - although it is unlikely that many people will be buying them
at the moment given where interest rates are - and to pursuing
customers who have been left facing large bills from the ultra-low
interest rate environment.
I
should point out that the details of the FSA statement are still
being thrashed out today and that depending on the outcome of the
discussions with banks, it may make more limited comments on the
issue or proceed to a more formal inquiry.
"It
(the content of the FSA’s statement) is still very much a moving
target,” an insider at the City regulator told me.
What
is beyond doubt is that the FSA has completed an initial review of
the sale of the interest rate swap products, which were designed to
protect those who bought them against steep changes in interest rates
by hedging their exposure to such movements.
Many
business owners have complained that they were unfairly saddled with
huge penalties from the slashing of interest rates to record lows in
the aftermath of the banking crisis.
I
have learnt that in recent days the FSA has asked the major high
street lenders which sold interest rate swaps – led by Barclays and
the taxpayer-controlled Royal Bank of Scotland – to commit to
writing to the hundreds of thousands of SME customers who took out
these swap products.
The
communications with customers will be divided into two categories:
those who were sold relatively simple products, who are expected to
have the opportunity for their cases to be reviewed; and those who
were sold more complex products or were unlikely to have understood
the downside risk they were taking on.
As
I understand it, under the scenario being discussed by the FSA and
the major banks, those who fall into the second category will be told
that their case will be reviewed by an independent assessor and that
they will be compensated appropriately if there is evidence of
mis-selling.
The
compensation would be calculated from the difference between the loss
suffered by a customer and the cost of a simple fixed-rate loan from
the same bank.
To
be clear, derivatives products of this nature by definition carry a
financial risk if rates move sharply in the opposite direction to
that which is being insured against.
The
conclusion that the FSA has uncovered new evidence of misselling
deals a devastating blow to the banking industry in the aftermath of
yesterday’s £290m fine imposed on Barclays for fixing the key
benchmark interest rate Libor.
The
FSA and the major banks declined to comment.
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