Barclays threatens to implicate UK regulators in rate-rigging probe

The rats are starting to turn on each other. Eventually gold and silver market rigging may be mentioned as well.

* * *

Barclays Chief Threatens to Hit Back

By Patrick Jenkins, Brooke Masters, and George Parker
Financial Times, London
Monday, July 2, 2012

http://www.ft.com/intl/cms/s/0/0130d092-c473-11e1-9c1e-00144feabdc0.html

Bob Diamond is threatening to reveal potentially embarrassing details about Barclays' dealings with regulators if he comes under fire at a parliamentary hearing on Wednesday over the Libor rate-setting scandal, according to people close to the bank's chief executive.

"If he is attacked, he will fight back," said one person familiar with preparations for the Treasury select committee hearing.

Such a confrontational tactic could aggravate the fraught relations between the bank and the authorities after Barclays paid L290 million to settle an investigation by UK and US regulators over the bank's involvement in manipulating key interbank lending rates.

... Dispatch continues below ...

On Monday, Marcus Agius, Barclays' chairman, confirmed his resignation and the government announced a twin probe into the Libor system and banking standards.

Barclays is facing a fierce backlash from politicians and some shareholders following its record fine. But the bank believes it has been unfairly singled out for criticism for reaching a settlement while 20 other banks are still embroiled in the probe.

According to two people close to Mr Diamond, the Barclays chief executive is furious that he and the bank have been blamed for "lowballing" the rates at which Barclays said it could borrow from rivals at the height of the financial crisis in 2007 and 2008. Bankers insist the authorities knew these rates were inaccurate but did not object at the time because of fears it could further destabilise already panicked markets.

Regulators "knew perfectly well those rates were not the ones where banks were prepared to lend to each other," said one senior banker at another institution. "They had all the evidence."

The settlement documents themselves allude to prior dealings with regulators over the issue. These include a conversation with the Financial Services Authority about "the extent that the Libors have been understated" and an October 2008 exchange, since revealed to have been between Mr Diamond and Paul Tucker, deputy governor of the Bank of England, in which Mr Tucker asked Mr Diamond why Barclays' Libor submissions were higher than those of other banks.

After that conversation, the settlement documents say, mid-level Barclays managers "mistakenly believed" that Barclays had been told by the BoE to reduce its Libor submissions. US settlement documents say that Mr Tucker did not give such an instruction and that Mr Diamond did not think he had done so.

On Monday, the UK's Serious Fraud Office said it was "considering whether it is both appropriate and possible to bring criminal prosecutions" of traders at Barclays and elsewhere who allegedly attempted to manipulate Libor. It will make a decision within a month.

In a letter to staff, Mr Diamond said: "No one is more sorry, disappointed, and angry about these events than I am." He added that Barclays' pay structures would be changed to reflect the lessons learnt.

George Osborne, chancellor of the exchequer, said Martin Wheatley, who oversees the conduct of financial institutions at the FSA, would lead an investigation into the functioning of the Libor rate, while Andrew Tyrie, the Conservative chairman of the TSC, would conduct a six-month parliamentary inquiry into banking standards.

Labour insists the review does not go far enough and is demanding a full public inquiry. Ed Miliband, Labour leader, also said it was insufficient that Mr Agius had resigned as Barclays' chairman. "I think there needs to be a more general change of leadership including the chief executive, Bob Diamond," Mr Miliband told ITV's Daybreak.

* * *