Barclays Executives Are Said to Know of Low Rates
Robert E. Diamond Jr., the chief executive of Barclays, told employees on Monday that he was “disappointed and angry” about the bank’s past attempts to manipulate key interest rates to bolster its bottom line.
But fresh details about the case show how Mr. Diamond and other senior executives played a role in the questionable actions and failed to prevent them. In 2007 and 2008, Mr. Diamond’s top deputies told employees to report artificially low rates in line with its rivals, deflecting scrutiny about the health of Barclays at the height of the financial crisis, according to several people close to the case.
The new revelations raise additional questions about the future of Mr. Diamond and top management, just days after the bank agreed to pay $450 million to settle the rate manipulation case. Lawmakers will ratchet up the pressure on Wednesday, when the chief executive is scheduled to testify before a British parliamentary committee.
David Cameron, Britain’s prime minister, also announced Monday a wide-ranging inquiry into the British banking sector, with the findings to be published by the end of the year. “We need to take action right across the board,” he told Parliament.
Regulators in London and Washington are broadly investigating whether big banks manipulated interest rates to their own advantage, aiming to increase profits and fend off questions about their health. Such benchmarks, including the London interbank offered rate, are essential to setting the lending rates for corporations and consumers.
At Barclays, the problems started at the top.
During the period in question, the bank looked like a winner. After Lehman Brothers collapsed in September 2008, Barclays picked up some of the pieces.
And unlike peers, the bank did not have to take government bailout money. But in late 2008, Mr. Diamond, then head of the investment banking unit, informed his deputies that outside officials, including the Bank of England, were concerned Barclays was reporting high interest rates, a sign of poor health. His top deputies relayed the message to lower-level employees, instructing them to depress the rates, according to people close to the case, who spoke on the condition of anonymity. The actions masked the bank’s true financial position.
Jerry del Missier, a rising star in the bank who is now the chief operating officer, was ensnared by the investigation as well, according to the people close to the case. He was briefed on the actions but did not prevent the wrongdoing, the people close to the case said. Two other top executives, Christopher Lucas, the finance director, and Rich Ricci, the investment banking chief, were also involved in the case, the people said.
None of the executives has been accused of any wrongdoing. Mr. del Missier was promoted just last month to chief operating officer. And people close to the case say Mr. Diamond never told anyone to submit bogus rates. Instead, Mr. Diamond’s conversation led to “a miscommunication,” according to regulatory documents.
Even so, the four executives forfeited their bonuses last week when Barclays disclosed the settlement with British regulators, the Justice Department and the Commodity Futures Trading Commission, one of the largest regulatory sanctions tied to the crisis.
Mr. Diamond, in a letter to employees on Monday, accepted responsibility for the debacle, which has caused a firestorm in London.
“I am disappointed because many of these behaviors happened on my watch,” he wrote.
Even as Mr. Diamond moved to allay concerns, the case claimed its first casualty after Marcus Agius, the chairman of Barclays, resigned on Monday. While Mr. Agius was not directly involved in manipulating interest rates, he acknowledged responsibility for the problem.
“Last week’s events have dealt a devastating blow to Barclays’ reputation,” Mr. Agius said in a statement. “As chairman, I am the ultimate guardian of the bank’s reputation.”
Barclays announced on Monday that it will conduct an independent audit of its business practices. The review will center on what led to the rate manipulation, as well as other “flawed” practices, and how these issues will affect the bank’s business units in the future.
The Serious Fraud Office of Britain also said on Monday that it may pursue criminal prosecutions in connection to the manipulation of Libor. British authorities, who continue to work with counterparts overseas, will make a decision about the evidence gathered by the country’s Financial Services Authority.
Regulators are continuing to investigate whether many other big banks tried to manipulate Libor, a measure of how much banks charge each other for loans. Libor and the other interbank rates are published daily, based on surveys from banks about the rates at which they could borrow money. Regulators in the United States have issued subpoenas to several banks involved in Libor, including Bank of America, UBS and Citigroup.
In the Barclays case, regulators accused the bank of lowering its Libor submissions to deflect concerns about its high borrowing costs. The managers in the treasury department sought rates in line with rival banks and directed employees not to put your “head above the parapet.”
In November 2007, one employee asked to take the issue “upstairs,” referring to higher firm officials, regulatory documents show. Mr. Lucas, the current finance director who had a role in overseeing the treasury department back then, was told of the dubious practice, a person briefed on the matter said.
But executives did not put a stop to the practice. Instead, a treasury manager later said that top executives instructed the group to continue to “stick within the bounds,” according to regulatory documents.
One concerned employee called the rates “patently false,” prompting a supervisor to relay the worries to “a member of senior management.” Again, the top executives failed to stop it.
As the crisis dragged on, concerns about Barclays mounted. Even after trying to depress the rates, the bank’s submissions were relatively high, prompting speculation about its health.
In the fall of 2008, Paul Tucker, deputy governor of the Bank of England, spoke with Mr. Diamond about the high Libor submissions, according to one of the people close to the case. The conversation prompted Mr. Diamond to relay the central bank’s concerns to his top deputies.
While Mr. Diamond never specifically told anyone to influence Libor, at least one of the deputies acted on the discussion, regulatory records show. After talking with Mr. Diamond, the deputy then instructed employees that the Libor submissions should be lowered to be “within the pack.”
Barclays declined to comment.
On Monday, Mr. Diamond accepted responsibility without specifying his role in the inquiry.
In the letter to employees, he said, “It does not matter if this was perpetrated by one individual or a handful — it was wrong.”