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Barclays sets out defence on Libor fixing
July 3, 2012 / 10:21 PM / 5 years ago

Barclays sets out defence on Libor fixing

LONDON (Reuters) - Barclays gave its first in-depth account of the interest rate fixing scandal that led to the exit of the bank’s chief executive Bob Diamond on Tuesday by releasing a document it will present to MPs.

The bank said in the nine-page document published on its website on the eve of a parliamentary hearing that the events leading to a record breaking settlement with U.S. and British regulators “should never have taken place” and it deeply regretted that they had.

But Barclays detailed in its account to parliament how it thought British authorities had indicated they were happy for it to make a lower submission to the London interbank offered rate - known as Libor - when markets were in turmoil and confidence in banks fraying.

Libor is compiled as a market benchmark by averaging rates at which banks say they are able to borrow from each other in various currencies and maturities. By giving the compilers rates lower than those that the bank is actually able to borrow at, an institution may profit on certain contracts - or simply give the appearance that its lenders have more confidence than they do.

Barclays says it thought that it had been told in October 2008 by the Bank of England that it did not have to submit its Libor interest rates at the high level it had been doing in the wake of the collapse of Lehman Brothers, when most banks found borrowing costs rising. The Bank declined comment.

If a bank is seen to be having to borrow at higher rates, this casts doubt in markets about its creditworthiness.

The document published will form the backbone of testimony by Diamond, who resigned after intense political pressure, when he appears before parliament’s Treasury Select Committee on Wednesday.

Barclays was last week fined a record $450 million for inaccurately submitting Libor rates from 2005 to 2009. Libor is based on rates submitted by a group of banks and is used around the world to price anything from derivative instruments to mortgages and student loans.

Some of the rigging was due to traders trying to fix the rate for their own gain. On other occasions the bank submitted a lower rate so it did not appear to have higher funding costs.


Barclays said it had conducted an “exhaustive internal investigation” which had taken more than three years and cost more than 100 million pounds. This had included reviewing 22 million documents from over 200 custodians, over 1 million audio files and more than 75 interviews.

But despite being praised for the level of cooperation with authorities including the Department of Justice and being the first to come to an agreement with regulators, the bank said it was “ironic that there has been such an intense focus on Barclays alone, caused by our being first to settle in the midst of an industry-wide, global investigation”.

Barclays also maintains that many of the individual traders involved in attempts to manipulate the benchmark interest rate no longer worked at the firm and action had been taken against those who did remain.

The bank said Jerry del Missier, its chief operating officer who also resigned on Tuesday, had been investigated by Britain’s Financial Services Authority (FSA) and this case had been closed with no action taken. It gave no details of the investigation.

Del Missier could not be reached for comment.

It warned MPs that Diamond’s evidence to them about the Libor rigging affair would be constrained by legal limitations, notably because a process was under way “to assess what action may be necessary in respect of individuals involved”. “There are also ongoing criminal investigations and legal proceedings,” it added.

Because Diamond, who at the time was responsible for the business, was a witness to the events, his involvement in the investigation had been limited and he had been only received copies of the settlement documents on June 20.


Referring to the period after the Lehman collapse in 2008, Barclays said that it believed banks contributing to the Libor survey were deliberating reporting lower borrowing costs than they were actually paying. It said in the document that it “did not understand why other banks were consistently posting lower submissions” than Barclays and that it “firmly believed that the other panel members were not, in fact, funding at a lower cost than Barclays”.

It said it had been “disappointed that no effective action was taken, notwithstanding our having raised these issues with various authorities during the whole financial crisis period”.

The bank also provided a timeline in which it outlined when it had raised its concerns with regulators, the Bank and U.S. Federal Reserve and the British Bankers’ Association, which oversees the setting of Libor. The Libor figures submitted by banks are compiled by Thomson Reuters, parent company of Reuters, on behalf of the BBA.

The New York Federal Reserve has declined comment. The BBA said last week it had been “shocked” by the scandal and called for a review of the system.

According to a memo from Diamond, then head of Barclay’s investment banking arm, the deputy governor of the Bank, Paul Tucker, had told him that senior figures in Whitehall, seat of Britain’s government, had questioned why Barclays was submitting such high Libor prices at that time.

“Mr Tucker stated the levels of calls he was receiving from Whitehall were senior and that, while he was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently,” Diamond wrote to John Varley, then CEO of Barclays, according to the bank’s document.

In the same submission to parliament, Barclays said the interpretation of that memo within the bank caused it to deliberately report lower borrowing costs to the Libor compilers than it was actually paying at the time. It said Diamond did not believe he had received an instruction from Tucker to lower rates. But, it said, that was the conclusion reached by del Missier, then president of investment banking division Barclays Capital. It was he who told Libor submitters to lower rates.

Alistair Darling, who was chancellor at the time in the centre-left Labour government which lost power in 2010, said he could not believe Barclays’ contention that the bank had been given official guidance to mis-report its borrowing costs:

“What Bob Diamond or Barclays appear to be saying is that the Bank (of England) told them to do this,” Darling told Channel Four television. “I would find it absolutely astonishing that the Bank would ever make such a suggestion and equally I can think of no circumstances that anyone, certainly in the department which I was responsible for - the Treasury - would ever suggest wrongdoing like this.”

Noting the efforts made to provide liquidity to the banking sector to ease upward pressure on banks’ borrowing costs, he said: ”Policy was changed in order to get that rate down.

“However, it would have been reprehensible and wholly unforgivable if anyone had attempted to try and manipulate this rate by simply putting in false figures.”

Barclays’ documents showed it had held 13 “principal documented contacts” with the FSA related to its Libor submissions in 2007 and 2008. It had 12 contacts with the New York Federal Reserve and two with the Bank.

Barclays said in its document: “We believe that this chronology shows clearly that our people repeatedly raised with regulators concerns arising from the impact of the credit crisis on Libor setting over an extended period.”

According to the FSA, “individuals at Barclays raised concerns with the FSA, the Bank, the Federal Reserve Bank of New York and the BBA about the accuracy of Libor submissions.” A spokesman for the New York Fed declined comment.

Barclays also said that it had no intention of affecting the Libor rate itself as the bank was regularly being excluded from the calculation because it was so far out of line with other banks and the instruction from del Missier “became redundant after a few days as liquidity flowed back into the market”.

Editing by Alexander Smith and Alix Freedman

Our Standards:The Thomson Reuters Trust Principles.
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