Bob Diamond, chief executive of Barclays, has “very serious questions” to answer about the growing scandal around attempts to manipulate the London Interbank Offered Rate (Libor), UK Chancellor George Osborne said Thursday.
The bank’s shares plummeted Thursday, along with other UK banks like HSBC, Lloyds and RBS, as the storm brewing over manipulation of the interbank lending rates known as Libor and Euribor grew.
Banks outside the UK such as Citigroup , which the UK Chancellor of Exchequer says is not part of the probe but which helps set Libor, were also down.
Osborne hinted at more stringent regulation of the banking sector as he railed against “systemic failures” where the “only motive was greed.” He added that the government was examining changing the law to make it a criminal offence to manipulate Libor.
Diamond is also likely to face questions from the Treasury Select Committee after Osborne backed the Committee’s calls for him to appear and said he had “very serious” questions to answer about what he knew, when he knew it and who should pay the price.
Those summoned by a UK parliamentary committee are obliged to appear.
Diamond has already said he’ll forgo his bonus for this year after Barclays agreed to pay out $453 million in total. Traders at the bank distorted Liborand Euribor rates for five years between 2005-09, which not only affected the market and increased their profits, but cast a flattering light on Barclays’ financial health, according to authorities.
They were able to do this because Barclays was one of the banks trusted to tell the regulator which calculated Libor and Euribor what the inter-bank lending rates were trading at for them. The rate influences everything from borrowing costs for acquisitions to mortgage rates.
Barclays is unlikely to be the last bank fined as a result of this fixing scandal. The US Commodity Futures Trading Commission said in its statement that Barclays was helping it investigate other banks. UBS has disclosed that it has received subpoenas as a result of the investigation, and other banks which helped set the rate are believed to be under investigation.
The bank is viewed as one of the UK’s strongest, and until now seemed to have navigated the financial crisis relatively well. While close to a third of shareholdersvoted againstDiamond’s pay packet at this year’s annual general meeting, he still has plenty of fans in the investor base.
However, some of the gloss is likely to be chipped from the American banker, who made his name running Barclays Capital. British politicians were quick to criticize him and call for his resignation following the announcement of the settlement yesterday.
Former City minister and ex-chairman of Marks & Spencer Lord Myners told the BBC Wednesday: "This is the most corrosive failure of moral behaviour I have seen in a major UK financial institution in my career.
"I think fines and public criticism will not stop these behaviors. These behaviors will not stop until the people perpetrating it or responsible for overseeing them face the prospect of criminal charges and the prospect of going to jail."
Lord Oakeshott, a high-profile Liberal Democrat politician, said: "If Bob Diamond had a scintilla of shame he would resign." (Related: Notable CEO Ousters)
"If Barclays' board had an inch of backbone between them they would sack him."
Barclays admitted Wednesday that the actions "fell well short of standards”
Emails and instant messages disclosed as a result of the investigation cast an unflattering light on the corporate culture on Barclays’ trading floor. The back and forth over fixing rates included cringeworthy comments like "Done ... for you big boy," and “Dude, I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger.”
However, the more dangerous emails and messages are those demonstrating that the senders knew that what they were doing was dubious.
“This is the way you pull off deals like this chicken, don't talk about it too much, 2 months of preparation... the trick is you do not do this alone ... this is between you and me but really don't tell ANYBODY,” one Barclays trader wrote to a trader at another bank.