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'Systematic dishonesty' at Barclays, says former boss



June 26, 2012



The former chief executive of Barclays Martin Taylor has told the BBC that Barclays' actions amount to "systematic dishonesty".


Barclays was fined £290m ($450m) for trying to manipulate interest rates at which banks lend to each other.


Martin Taylor, who was chief executive, of the bank from 1994 to 1998 said that Barclays' deception looks like a deliberate strategy as it had been going on for years.


Other banks are also being probed.


The chief executive of Barclays, Bob Diamond, has come under pressure to resign.


The Liberal Democrat peer, Lord Oakeshott, said that if Mr Diamond had any shame, he would resign.


Former City minister Lord Myners told the BBC that the people at the top should take responsibility.


Barclays has said its actions "fell well short of standards".


In response, chief executive Bob Diamond and three other top executives at the bank are to give up their bonuses this year.


Investigators say that Barclays' traders lied to make the bank look more secure during the financial crisis and, sometimes - working with traders at other banks - to make a profit.


Mortgage deals

Tracey McDermott, director of enforcement at the FSA, which imposed fines alongside the US financial regulator, told the BBC: "We have a number of investigations that are ongoing.


"Obviously we need to look at each case on its own particular facts but the initial indications are that Barclays was not the only firm that was involved in this."


The US Department of Justice also said criminal investigations into "other financial institutions and individuals" was ongoing.


Other big names believed to be under investigation include Citigroup, JP Morgan, Deutsche Bank, HSBC and Royal Bank of Scotland.


Barclays' misconduct relates to the daily setting of the London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor).


These are two of the most important interest rates in the global financial markets and directly influence the value of trillions of dollars of financial deals between banks and other institutions.


They can also affect lending rates to the public, for instance with some mortgage deals.


It is not yet clear whether Barclays staff actually succeeded in manipulating the interest rates to the bank's advantage and therefore whether it had any impact on borrowers.


While the FSA said only that the Barclays employees had attempted to do so, the US Department of Justice said that on some occasions they did affect the Libor and Euribor rates.


Former City minister Lord Myners told the BBC that the people at the top should take responsibility for "a complete cultural failure".


He said the behaviour of Barclays staff was the worst he had seen.


"This is the most corrosive failure of moral behaviour I have seen in a major UK financial institution in my career," he said.


"I think fines and public criticism will not stop these behaviours. These behaviours 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."


The former Liberal Democrat Treasury spokesman, Lord Oakeshott said: "If Bob Diamond had a scintilla of shame he would resign."


"If Barclays' board had an inch of backbone between them they would sack him," he said.

Andrew Tyrie, chairman of the Commons treasury committee, said it would summon Mr Diamond to account for what had happened.


"Banks were clearly acting in concert. I fear it's not going to be the end of the story, that we are going to find that other banks have been involved," he said.


'Accepted culture'

The fine imposed on Barclays is part of an international investigation into the setting of interbank rates between 2005 and 2009.


Each day the British Bankers' Association (BBA) and the European Banking Association publish the the Libor and Euribor rates by taking an average of the estimated rates submitted to them by leading banks.


Between 2005 and 2008, the Barclays staff who submitted estimates of their own interbank lending rates were frequently lobbied by its derivatives traders to put in figures which would benefit their trading positions, in order to produce a profit for the bank.


And between 2007 and 2009, during the height of the banking crisis, the staff put in artificially low figures, to avoid the suspicion that Barclays was under financial stress and thus having to borrow at noticeably higher rates than its competitors.


The FSA pointed out that Barclays traders were quite open about their routine attempts to lobby their colleagues who submitted the bank's estimate of its borrowing costs to the BBA.


It was particularly concerned because it appeared to be "accepted culture" among some staff.


"Requests to Barclays' submitters were made verbally and a large amount of email and instant message evidence consisting of derivatives traders' requests also exists," the FSA said.


In one instance, a trader recounted a conversation in which he had "begged" the submitter to put in a lower Libor figure.


"I'm like, dude, you're killing us," he said. His manager replied, "just tell him to... put it low".


In turn, the staff submitting the data would respond to the traders' requests.


"For you…anything," said one. "Done… for you big boy," said another.


And: "I owe you big time... I'm opening a bottle of Bollinger."

Timeline: Barclays' widening Libor-fixing scandal

July 3, 2012
Libor, the London inter-bank lending rate, is considered to be one of the most crucial interest rates in finance.


It underpins trillions of pounds worth of loans and financial contracts.


So, when Barclays was fined £290m last week after some of its derivatives traders were found to have attempted to rig this key rate, public confidence in banks was shattered.


The scandal has forced Barclays chairman Marcus Agius to resign.


Now, pressure is mounting against Bob Diamond, the chief executive, to follow suit.

Here are some of the key dates in the scandal:



As early as 2005 there was evidence Barclays had tried to manipulate dollar Libor and Euribor (the euro equivalent of Libor) rates at the request of its derivatives traders and other banks.


Misconduct was widespread, involving staff in New York, London and Tokyo as well as external traders.


One Barclays trader told a trader from another bank in relation to three-month dollar Libor: "duuuude... what's up with ur guys 34.5 3m fix... tell him to get it up!"


Between January 2005 and June 2009, Barclays derivatives traders made a total of 257 requests to fix Libor and Euribor rates, according to a report by the Financial Services Authority (FSA).



At the onset of the financial crisis in September 2007 with the collapse of Northern Rock, liquidity concerns drew public scrutiny towards Libor. Barclays manipulated Libor submissions to give a healthier picture of the bank's credit quality and its ability to raise funds. A lower submission would deflect concerns it had liquidity problems.


Barclays' Libor submissions were at the higher end of the range of contributing banks, and prompted media speculation about the true picture of the bank's risk and credit profile.


Senior treasury managers instructed submitters to reduce Libor to avoid negative publicity, saying Barclays should not "stick its head above the parapet".


On 28 November, a senior submitter wrote in an internal email that: "Libors are not reflecting the true cost of money."


A Barclays compliance officer contacted the UK banking lobby group British Bankers' Association (BBA) and the FSA and described "problematic actions" by other banks, saying they appeared to be understating their Libor submissions.


During the financial crisis Barclays was in daily contact with the FSA but failed to discuss its own false submissions, instead commenting about liquidity generally. It told the regulator its submissions were within a reasonable range.


In an email in late December, one submitter expressed his discomfort at the rate manipulation: "My worry is that [both Barclays and the contributor bank panel] are being seen to be contributing patently false rates," he said.

"We are therefore being dishonest by definition and are at risk of damaging our reputation in the market and with the regulators."



A string of media reports questioned the integrity of Libor.


Around 16 April, a senior Barclays treasury manager informed the BBA in a phone call that Barclays had not been reporting accurately. But he defended the bank, saying it was not the worst offender: "We're clean, but we're dirty-clean, rather than clean-clean."

"No one's clean-clean," the BBA representative responded.


Barclays received communications from the BBA expressing concern about the accuracy of its Libor submissions. The BBA said if the media reports were true, it was unacceptable.


On 17 April, a manager made comments in a call to the FSA that Barclays had been understating its Libor submissions: "We did stick our head above the parapet last year, got it shot off, and put it back down again. So, to the extent that, um, the Libors have been understated, are we guilty of being part of the pack? You could say we are... Um, so I would, I would sort of express us maybe as not clean clean, but clean in principle."


On 29 May Barclays agreed internally to tell the media that the bank had always quoted accurate and fair Libors and had acted "in defiance of the market" rather than submitting incorrect rates.


On 10 June, the BBA published a consultation paper seeking comments about proposals to modify Libor. "The BBA proposes to explore options for avoiding the stigma whilst maintaining transparency," it said. Barclays contributed comments but avoided mentioning its own rate submissions.


On 5 August the BBA published a feedback statement on its consultation paper, and concluded that the existing process for submissions would be retained.


In September, following the collapse of Lehman Brothers, the Bank of England had a conversation with a senior Barclays official, in which it raised questions about the bank's liquidity position and its relatively high Libor submissions.


In late October, following the discussion with the Bank of England, Barclays instructed Libor submitters to lower the rate to be "within the pack".


On 17 November the BBA issued a draft document about how Libor rates should be set and required banks to have their rate submission procedures audited as part of compliance. The final paper would be circulated on 16 July 2009.



On 2 November the BBA circulated guidelines for all contributor banks on setting Libor rates in the same manner. Barclays made no changes to its systems to take account of the BBA guidelines.


In December Barclays started to improve its systems and controls but ignored the BBA's guidelines.


Until 2009 the bank did not have a formal Chinese wall between the derivatives team and the submitters.



In June, Barclays circulated an email to submitters that set out "fundamental rules" that required them, for example, to report to compliance any attempts to influence Libor submissions either externally or internally. It also prohibited communication with external traders "that could be be seen as an attempt to agree on or impact Libor levels".



In late 2011, Royal Bank of Scotland sacked at least 10 people for their alleged roles in the Libor-fixing scandal.




On 27 June Barclays admitted to misconduct. The UK's FSA imposed a £59.5m penalty. The US Department of Justice and the Commodity Futures Trading Commission (CFTC) imposed fines worth £102m and £128m respectively, forcing Barclays to pay a total of around £290m.


One day later, Barclays' share price plunged 15%.


Chief executive Bob Diamond said he would attend a Commons Treasury Committee and that the bank would cooperate with authorities. In a letter to the committee chairman Andrew Tyrie, he wrote: "Even taking account of the abnormal market conditions at the height of the financial crisis, and that the motivation was to protect the bank, not to influence the ultimate rate, I accept that the decision to lower submissions was wrong." However, he said he would not resign.


On 29 June Prime Minister David Cameron urged regulators to use "all the powers at their disposal" to pursue Barclays. "This is a scandal. It is extremely serious. They've had a very large fine and quite rightly. But frankly the Barclays management team have some big questions to answer," he said.


The same day, Bank of England Governor Sir Mervyn King called for a "cultural change", adding: "The future calculation of Libor on 'my word is my Libor' is now dead." He said implementing the Vickers banking reforms was the most important first step, but ruled out a Leveson-style enquiry into the banks.



On 2 July:

  • Barclays chairman Marcus Agius resigned and also tendered his resignation as chairman of the BBA and Mr Diamond said in a letter to staff that he would "get to the bottom" of what happened
  • The Serious Fraud Office (SFO) considered whether to bring criminal charges against bankers who tried to manipulate the inter-bank lending rate.
  • Prime Minister Cameron announced a parliamentary review of the banking sector, to be headed by the chairman of the Treasury Committee, Andrew Tyrie. The review should ensure that the UK had the "toughest and most transparent rules of any major financial sector", Mr Cameron said.


On 3 July Barclays chief executive Bob Diamond resigned, saying that the external pressure on the bank risked "damaging the franchise".