UPDATE 2-Barclays chairman to quit; Libor discussed with BoE

Sun Jul 1, 2012 4:35pm EDT

* Barclays to announce Chairman Agius to go on Monday-source

* BoE's Tucker, Barclays CEO spoke on Libor in 2008-sources

* Tucker, Diamond chat led to "mistaken" setting of low rates

By Avril Ormsby and Steve Slater

LONDON, July 1 (Reuters) - Barclays Plc Chairman Marcus Agius is set to quit o n M onday as the interest rate rigging scandal takes its first major scalp and threatens to widen to other banks, raising questions about the involvement of the Bank of England.

The resignation of Agius, chairman at Barclays for 5-1/2 years, is expected to be announced on Monday, a person familiar with the matter said.

Pressure has built on CEO Bob Diamond and Agius to quit following a $453 million fine for Barclays by British and U.S. regulators last week for submitting inaccurate submissions on the Libor interest rate.

Barclays has admitted that some of its traders attempted to manipulate the setting of the London interbank offered rate (Libor), which is used worldwide as a benchmark for setting prices on about $350 trillion of derivatives and other financial products.

A key conversation held in October 2008 that was last week highlighted in documents about the scandal was said to be between Diamond and Bank of England (BoE) Deputy Governor Paul Tucker, people familiar with the matter said.

A BoE spokesman said: "The call referred to in the report was one of many regular market calls made by the Bank of England, in this case, by Paul Tucker."

The conversation , at a time when Barclays was submitting inaccurate submissions, c ould b e embarrassing for Tucker, who is a leading candidate to succeed Mervyn King as governor of the UK cen tral bank next year.

Some people at Barclays mistakenly believed the bank had been granted permission to submit artificially low Libor estimates after that conversation, the documents released last week showed.

Barclays has admitted it submitted artificially low estimates of its borrowing costs from late 2007 to May 2009 because it thought rivals were doing the same and its higher submissions made it look troubled.

The U.S. Department of Justice said in a statement of facts document released after the fine that a conversation between a senior BoE official and a senior Barclays official on Oct. 29, 2008 had encouraged the bank's submissions to be low.

As the substance of the conversation was relayed to other Barclays' employees, the DoJ document said some mistakenly believed they had been instructed by the BoE to lower Libor submissions.

But t he document also said the senior Barclays employee did not believe the BoE official had given an i nstruction t o lower Libor submissions.

More than a dozen other banks are being investigated in the long-running global probe by authorities in North America, Europe and Japan, including Citigroup, HSBC, UBS and Royal Bank of Scotland. Analysts and bankers expect more big fines.

State-backed RBS is expected to face a fine, although the bank has said no f ine or settlement has been decided upon. I t fi red four traders in connection with the affair in February, peo ple wit h knowledge of the matter said.

BIG WEEK AHEAD

Diamond and Agius are due to appear before UK lawmakers this week to face a grilling on what they knew about the rigging of rates. Diamond will appear on Wednesday, and Agius was due to appear on Thursday.

Both are likely to be quizzed on what the Bank of England and other regulators knew.

Between November 2007 and October 2008 some Barclays employees raised concerns with the BBA, the Financial Services Authority, the BoE and the Federal Reserve Bank of New York regarding its concern that Libor rates were being set too low, the DoJ documents said.

It said the employees did not provide "full and accurate information" to the authorities.

Agius became chairman at the start of 2007 after more than 30 years as an investment banker and then chairman at Lazard.

He is also c hairman of the British Bankers' Association, the UK banking lobby group that is also responsible for setting Libor. The BBA chairman is always drawn from one of the banks, so it is likely Agius would leave that position too.

No criminal charges have been filed in the UK as a result of the Libor investigation, but Britain has called in the fraud squad to investigate possible crimes.

The government on Saturday ordered an independent review into the workings of key lending rates between banks.

It plans a short, urgent review that would allow it to amend the Financial Services Bill currently going through parliament and which will examine Libor setting and the possibility of criminal sanctions, government sources said.

T he chairman of Britain 's financial regulator the Financial Services Authority (FSA) said on Sunday there was a possibility of strengthening legislation to cover malpractice in this area.

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