Barclays scandal: what they did and why Diamond 'has to go'
Banking giant's reputation on the line after traders sought to manipulate markets – and others may have been at it too
BARCLAYS BANK has been hit with record fines totaling £290m by financial regulators on both sides of the Atlantic after staff were found to have attempted to manipulate the benchmark Libor rate which ultimately governs the rate at which banks loan money. It means that millions of holders of mortgages, credit cards and small business loans may have been charged more than was necessary. What exactly did Barclays do, and will the bank's boss, Bob Diamond, get the sack?
WHAT IS LIBOR?
Every day, figures from the major banks about how much they are charging fellow financial institutions to borrow money are collated by the British Bankers' Association (BBA) to come up with the London Interbank Offered Rate (Libor), an average rate that indicates the health of the banking sector and the trust that exists between players in the sector.
The Financial Services Authority (FSA) calls Libor and its European equivalent Euribor "benchmark reference rates fundamental to the operation of both UK and international financial markets". More than £230 trillion of financial swap deals and loans are indexed to the Libor, according to the BBA.
WHAT DID BARCLAYS DO?
Between 2005 and 2009, Barclays traders and managers systematically sought to manipulate the reports that the bank sent to the BBA, cajoling and even offering incentives such as Bollinger champagne to the 'submitters' who prepared the data, with the aim of boosting profits during the period until 2008, or helping to cover up their losses during the peak of the banking crisis between 2007 and 2009.
Email exchanges and records of phone conversations show that the practice was widespread and openly discussed among Barclays employees and even people outside the bank. One external trader wrote in October 2006: "If Libor comes in unchanged I'm a dead man" before later saying "Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger".
HOW SERIOUS IS IT?
Libor is used by banks to set their other rates, from credit cards and mortgages to loans for small businesses and individuals. Although it is uncertain whether the actions of the Barclays traders actually ever affected the Libor rate, the events fit into a wider narrative of distrust in banks and finance for the public.
The BBC's business editor Robert Peston says it is the ultimate betrayal by Barclays of its customers: "It's quite hard to think of behaviour by a bank as shocking as this: not telling the truth about what it is costing you to borrow, that then becomes a benchmark for pricing other deals." He goes on to note that regulators are now investigating other banks for the same offence.
In the Times, business editor Ian King says: "There is a serious moral issue here. If a mortgage customer lies about their financial circumstances to Barclays, in the way the bank has been shown to have lied about the sums it was having to pay to borrow in the inter-bank markets, they risk losing their home." He concludes by asking if this could be a "Leveson moment" for the industry.
WHAT NOW FOR BOB DIAMOND?
The fines levied on Barclays - a record £59.5m by the FSA and £230m by US authorities - can be taken in their stride: the bank made a profit of £2.45bn in the first quarter of 2012. However the reputations of chairman Marcus Agius and swashbuckling chief executive Bob Diamond, who was in charge of the wing where the events took place, could be fatally damaged.
Although Diamond and other Barclays executives have agreed to forgo their annual bonuses, that is not nearly enough in the view of many observers.
Jeremy Warner in the Daily Telegraph questions whether Diamond can survive: "Whether [he] knew of what was going on or not, you cannot as chief executive have American regulators accuse Barclays of making false Libor reports 'at the direction of senior management' and expect to survive."
Liberal Democrat Treasury spokesman Lord Oakeshott was adamant: “This does terrible damage to Barclays' own reputation, the integrity of the city of London and many people's waning trust in capitalism and free markets ... He [Diamond] has got to go and Barclays must be broken up – it's far too dangerous in these dangerous times."
In the Guardian, Nils Pratley says it is a "tough call" whether Diamond will survive. "Barclays seems to hope that expressions of 'the utmost regret' plus the sacrifice of bonuses by Diamond and three others to reflect 'collective responsibility' will suffice. It may also be hoping that, as this is an industry-wide investigation, revelations elsewhere will show Barclays not to be unique in its dishonesty."