In what is rapidly turning into a bloodbath in the City of London, the resignation of Bob Diamond, the CEO of Barclays Bank, was rapidly followed by that of Jerry del Missier, his chief operating officer. Both were high-earning titans in the financial world, and felled by the scandal of Barclays’ alleged rigging of the interbank lending LIBOR (London Interbank Offered Rate) rate between 2005 and 2009, which earned a $450 million fine last week from the Department of Justice and the U.K.’s Financial Services Authority.
Diamond is expected to receive a severance package of more than $30 million and, despite his resignation, still appear before lawmakers at an emergency committee in Parliament tomorrow. During his last appearance before a House of Commons in 2009, Diamond infamously said: “There was a period of remorse and apology for banks. I think that period needs to be over.” Three years on, the demands for some kind of reparation have reached fever pitch.
Nominated the “most hated man in Britain,” Diamond has now become the prime symbol of the bonus culture which characterized his 16-year tenure at Barclays. At one press conference soon after the collapse of Lehmann Brothers, Diamond angrily said he found questions about Barclays’ bonuses “provocative.” Nothing changed in the culture of massive rewards. In 2010 the average bonus at the investment arm, Barclays Capital, was £64,000, and such payments constituted 28% of the bank’s profits.
It is this culture of life-changing rewards for risky trading while the economy has suffered a double-dip recession that underlies the mounting public outrage, and which legislators and industry regulators are determined to change. But the bloodletting won’t stop at Diamond or his chief operating officer.
The other scandal revealed last week concerned the alleged forced misselling of punitive interest-rate insurance by banks to small and medium-size businesses seeking loans. Barclays was not the only bank reprimanded for this scam, which also involved HSBC, Lloyds Banking Group PLC, and Royal Bank of Scotland Group Plc.
So it’s also unlikely that Barclays was the sole perpetrator of the rigging of the LIBOR market by deliberately misreporting its positions. The British Bankers Association, which sets the rate without external regulation, has 200 members. As a former director of the company now known as Barclays Capital, Martin Vander Weyer, told The Daily Beast, “False reporting was widespread, and like a version of game theory: because you assume others were doing it, you did it yourself.”
More seriously still, the scandal now looks set to engulf the Bank of England, as the release of the submission from Barclays ahead of tomorrow’s select committee throws a bombshell in the direction of Britain’s independent central bank.
Barclay’s written evidence claims that the bank “believed that other banks were making LIBOR submissions that were too low and did not reflect market conditions.” It also claims that “Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high.”
Nominated the “most hated man in Britain,” Diamond has now become the prime symbol of the bonus culture which characterized his 16-year tenure at Barclays.
In support of this, Barclays has appended a memo (though not a transcript) of a phone conversation between Diamond and Robert Tucker, deputy governor of the Bank of England in October 2009, that suggests that “senior figures in Whitehall” had been in touch with Tucker, and that Barclays LIBOR submissions “did not always need to be the case that we appeared as high as we have recently.”
The confirmation of high-level discussions between Tucker and Diamond during the rigging of the LIBOR puts the deputy governor of the Bank of England in an invidious position. Either he colluded with the practice or was oblivious to the point of negligence. He either presents himself as a fool or a knave.
Though until recently a favorite to succeed the current governor, Mervyn King, when he retires next year, Tucker’s future at the central bank looks increasingly precarious. Meanwhile, the alleged connection to “senior civil servants” could well bring the scandal inside the doors of government.