July 13, 2012 / 3:11 PM / 7 years ago

Barclays business feels pain of rate fixing scandal

LONDON, July 13 (Reuters) - Barclays Plc is already counting the cost of lost business over its part in rigging a global interest rate and may be spared a worse exodus of customers only because the cloud of scandal hangs over other banks too.

So far, Barclays is the only bank to admit a role in manipulating the London interbank offered rate, Libor, which sets a benchmark for interest rates on everything from mortgages to credit cards and over $550 trillion in financial derivatives.

Britain’s third biggest bank was dropped from a Japanese bond deal this week. Meanwhile, the council in the central English city of Leicester said it was pulling out 6 million pounds ($9 million) in deposits.

“We share in the anger expressed by many customers by the recent scandal,” said Rory Palmer, deputy mayor of Leicester, in a statement provided to Reuters. “We will not be investing in Barclays in the foreseeable future.”

The Japan Bank for International Cooperation left Barclays out of a deal which could have reached $1 billion in bond sales, having named the bank in May as one of three assisting. It would have earned hefty fees.

A banker with knowledge of the process said Barclays was dropped due to reputational and counterparty risk issues. “Clients are more sensitive to this stuff now,” he told IFR, a Reuters publication.

Mark Bamford, Barclays head of global fixed income syndicate, said it was business as usual for the firm.

“We remain focused on executing for clients and competing for their business every day, and our pipeline of deals continues to be very strong,” he said.

The bank declined further comment.

The scandal has forced out the bank’s chairman and chief executive and sparked a political row in Britain. It has also prompted talk of Barclays scaling back its investment bank, which had grown into the world’s seventh biggest.

There was no clear estimate of the total impact on business at Barclays since the scandal broke.


The loss of the deposits from Leicester, a city of around 300,000 people, was a pinprick compared to the cost even of the $450 million Barclays has been fined in Britain and the United States for helping rig Libor.

But the account would not be the last that Barclays lost over the scandal, said analysts from Italian investment bank Mediobanca in their daily research note on developments in the financial industry.

“The question is the scale of the outflows and the concern that corporate clients will start to follow,” said the note, which goes to the bank’s investment customers.

“The only good news is that many of Barclays’ competitors are also being investigated. The winners may be Goldman Sachs and Morgan Stanley who are not involved in the scandal.”

U.S. investment banks Goldman Sachs and Morgan Stanley are not among the mainly commercial banks which provide Libor levels, but compete with many of them for investment banking business.

Both Goldman Sachs and Morgan Stanley declined to comment on any possible impact.

More than a dozen other banks are already being probed as part of the worldwide scrutiny, including UBS, Deutsche Bank and Royal Bank of Scotland, all of which have said they are cooperating with investigators.

The backlash faced by Barclays could deter others from co-operating. A complex legal process means it could take many more months for other settlements or fines to land, bankers and analysts said.

Rivals were on the lookout to snap up business, but a corporate broker at one rival firm said he expected Barclays’ clients to wait to see how things develop given the likelihood more banks will be drawn in.

The broker said that although few banks could be totally free of regulatory issues, the current environment could make it harder for Barclays to pitch for business.

“If someone were thinking of appointing Barclays as a broker, that would be a brave announcement at the moment,” he said.

Libor is compiled from estimates by large international banks of how much they believe they have to pay to borrow from each other.

The rates submitted by banks are compiled by Thomson Reuters , parent company of Reuters, on behalf of the British Bankers’ Association.

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