Top Tories dragged into banking scandal

[Douglas Caddy]

Top Tories dragged into banking scandal

Cameron allies linked to City firms under scrutiny over interest rate fixing

By Jane Merrick, Brian Brady, Matt Chorley, Jonathan Owen

The Independent

Sunday, 1 July 2012

Senior Tories were dragged into the interest rate-fixing scandal last night as fresh evidence emerged that the banking industry denied there were any problems with "the integrity" of Libor five years ago.

The Independent on Sunday has learnt that the Conservative deputy chairman, Michael Fallon, is a board member of a leading brokerage firm that dominates the rates market and which has been asked to co-operate with the Financial Services Authority's investigation into malpractice across the City.

Mr Fallon is a close ally of David Cameron and a senior member of the Treasury select committee that will question the Barclays chief executive, Bob Diamond, this week, prompting demands from Labour that he should declare an interest. The Prime Minister continues to resist calls from Ed Miliband for a Leveson-style inquiry into rate-fixing.

The Government is to set up an "urgent independent review" into Libor (the London inter-bank lending rate), but Labour continued to press for a judge-led inquiry. The review will consider the future operation of the Libor rate and the possibility of introducing criminal sanctions, a Treasury source said.

Class-action lawsuits are being filed in the US by plaintiffs that held financial products that depended on Libor. Any lawsuits that arise are likely to dwarf the fines that Barclays has already paid, perhaps running into the tens of billions across the industry.

The IoS can also reveal that the Bank of England was aware of concerns over Libor five years ago, and discussed it in at least two meetings with representatives of some of the City's biggest financial institutions.

Mr Fallon, the MP for Sevenoaks, has been a director of interdealer broker Tullett Prebon since 2006, standing down in 2010 when he ran unsuccessfully for chairman of the select committee, before being reappointed that year. Tullett Prebon is not under full investigation by the FSA into manipulation of Libor but has responded to "requests for information". A City source close to the investigation said it was "extremely unlikely Tullett Prebon would not be investigated" at some point, and sources at the firm, asked if employees could have engaged in wrongdoing, said they could "never say never". There is no suggestion of wrongdoing on the part of Mr Fallon or the company.

In a statement the firm said: "Tullett Prebon, like probably all firms in the City, has been responding to requests for information from the regulators. To date, we have had no cause to suspend or otherwise discipline any employee in connection with this inquiry."

Labour said the Tory deputy chairman had "serious questions" to answer over his role at the firm, given his key role in Parliament's inquiry into the rate-fixing scandal, which is thought to extend far beyond the wrongdoing at Barclays.

Labour MP Simon Danczuk said: "Across the banks there are serious questions about who knew what and when and that must include the deputy chair of the Conservative Party. We have to get to the bottom of the Libor fixing scandal, and the Government must also agree to calls by Ed Miliband and Ed Balls for a proper independent inquiry into the culture of banking."

The questions over the role of Mr Fallon followed the revelation that one of the Prime Minister's closest advisers, the former Tory party treasurer Michael Spencer, is under scrutiny by the FSA. Mr Spencer's brokerage firm ICAP is one of a number of institutions alleged to have helped to manipulate bank interest rates while he was treasurer of the Conservatives. Mr Cameron said yesterday that he needed to "think this through carefully" whether there should be a judge-led inquiry into the Libor scandal. Mr Fallon and Mr Spencer are not the only Tories with close links to the City, prompting concerns that the party is not enforcing tough action against the banking industry. Francis Maude, the Cabinet Office minister, was paid by Barclays to sit on its Asia-Pacific advisory committee between 2005 and 2009. A spokesman for Mr Maude said last night the minister was "absolutely not" aware of any wrongdoing at Barclays and that the committee met "three times over a couple of years", was purely advisory and had no executive function. Mr Fallon declined to comment.

Court documents filed in the US accuse Bank of England officials of failing to act on questions about "the integrity of Libor" raised during meetings of the Money Markets Liaison Group as early as 2007. The meeting was chaired by the BoE deputy governor, Paul Tucker, and attended by officials from institutions including at least seven that have since been named in Libor investigations.

The British Bankers Association assured group members of its "quality control measures", and said that "they speak to contributing banks regularly". The decision not to investigate further effectively enabled British bankers to go unchecked for more than a year. The FSA finally joined the investigation into Libor manipulation in October 2009, after other countries had already launched their own inquiries.

A Bank spokesman said last night it was "nonsense" to suggest it had been aware of any Libor-fixing in 2007 or 2008.

The Conservative connection

Michael Fallon

Mr Fallon is deputy chairman of the Conservative Party. A close ally of David Cameron and a reliable defender of the Government on the airwaves, the 60-year-old is a board member of Tullett Prebon Plc, a leading brokerage firm that dominates the rates market and which is being asked to co-operate with FSA inquiries. He resigned his directorship in the days after the coalition was formed, but was reappointed in September 2010. He receives a quarterly fee of almost £7,000 for 20 hours' work.

George Osborne

In a statement to the Commons on Thursday, the Chancellor of the Exchequer described the Libor scandal as a "shocking indictment of the culture at banks like Barclays in the run-up to the financial crisis". But at the time that brokers were swilling Bollinger and fixing rates, Mr Osborne was trying to convince the City that he was not some callow newcomer but a chancellor in-waiting. In 2007, bruised by hostile briefings that he wasn't up to the job, he made strenuous efforts to court the City, through the Conservative City Circle. This week he condemned his opposite number, Ed Balls, for failing to regulate the banks, but in 2007 he backed a Tory policy report written by John Redwood which called for deregulation of the mortgage market.

Michael Spencer

Mr Spencer is a former treasurer of the Conservative Party. The 57-year-old, a close friend of David Cameron, is head of ICAP, a brokerage firm alleged to have helped manipulate bank interest rates while he was also Tory party treasurer from 2006 until October 2010. ICAP is being investigated by regulators over claims the Libor lending rates were rigged. He remains chairman of the Conservative Foundation, a body launched in 2009 for the party to receive legacies free of inheritance tax. He was among a list of party donors to have enjoyed "kitchen suppers" in the PM's Downing Street flat.

Francis Maude

The Cabinet Office minister is a key Tory moderniser. He was a member of Barclays' Asia-Pacific Advisory Committee for much of the boom from 2005. In an entry in the Register of Members' Interests, he said: "My duties were to attend committee and other meetings by phone or in person; other advice and consultation by e-mail." He received payment of £9,230.23 after tax for 15 hours' work in 2009, and resigned at the end of that year. He joined the coalition government in May 2010.

[Douglas Caddy]

Libor scandal: How I manipulated the bank borrowing rate

An anonymous insider from one of Britain's biggest lenders – aside from Barclays – explains how he and his colleagues helped manipulate the UK's bank borrowing rate. Neither the insider nor the bank can be identified for legal reasons.

11:02PM BST 01 Jul 2012

The Telegraph

It was during a weekly economic briefing at the bank in early 2008 that I first heard the phrase. A sterling swaps trader told the assembled economists and managers that "Libor was dislocated with itself". It sounded so nonsensical that, at first, it just confused everyone, and provoked a little laughter.

Before long, though, I was drawing up presentations to explain the "dislocation of Libor from itself" for corporate relationship managers. I was deciphering the subject in emails, internally and externally. And I was using the phrase myself openly with customers of the bank.

What I was explaining was that the bank was manipulating Libor. Only I didn't see it like that at the time.

What the trader told us was that the bank could not be seen to be borrowing at high rates, so we were putting in low Libor submissions, the same as everyone. How could we do that? Easy. The British Bankers' Association, which compiled Libor, asked for a rate submission but there were no checks. The trader said there was a general acceptance that you lowered the price a few basis points each day.

According to the trader, "everyone knew" and "everyone was doing it". There was no implication of illegality. After all, there were 20 to 30 people in the room – from management to economists, structuring teams to salespeople – and more on the teleconference dial-in from across the country.

The discussion was so open the behaviour seemed above board. In no sense was this a clandestine gathering.

The main business of the day was to deal with the deepening crisis. And questions were raised about what we, in one of the bank's sales teams, could be doing to earn our wages.

The answer was fire-fighting. Helping the corporate bank with clients – predominantly explaining why the customer's loan was being moved from base rate to Libor and why their interest margin was increasing sharply. It wasn't easy for the corporate bankers. They were under orders from the credit committee, and powers at the top, to change a client's borrowing rate to Libor and increase the margin if any covenant was breached, no matter how small.

We accompanied the relationship managers to meetings to explain what was happening in the economy – why base rate lending could not be sustained, why margins had to increase, and of course to explain the general economic backdrop.

As part of that, we had to explain the "dislocation of Libor from itself". As the trader put it, everyone knew that we couldn't borrow at Libor, you only needed to look at the price of our credit default swaps – effectively survival insurance for the bank – to see that.

What that meant was that even though Libor may have been, for example 2pc, the real Libor rate the bank was paying was more like 5pc or 6pc. So in fact, we needed to be lending money at Libor plus 3pc or 4pc just to break even. That is what we were telling clients.

Looking back, I now feel ashamed by my naivety. Had I realised what was going on, I would have blown the whistle. But the openness alone suggested no collusion or secrecy. Management had been in the meeting, and so many areas of the Treasury division of the bank represented, that this was clearly no surprise or secret.

Libor had dislocated with itself for a very good reason – to hide the true issues within the bank.

[Douglas Caddy]

Joseph Stiglitz: Man who ran World Bank calls for bankers to face the music

Joseph Stiglitz tells Ben Chu that rogue financiers have proven that regulation must get tougher

By Ben Chu

The Independent

Monday, 2 July 2012

The Barclays Libor scandal may have shocked the British public, but Joseph Stiglitz saw it coming decades ago. And he's convinced that jailing bankers is the best way to curb market abuses. A towering genius of economics, Stiglitz wrote a series of papers in the 1970s and 1980s explaining how when some individuals have access to privileged knowledge that others don't, free markets yield bad outcomes for wider society. That insight (known as the theory of "asymmetric information") won Stiglitz the Nobel Prize for economics in 2001.

And he has leveraged those credentials relentlessly ever since to batter at the walls of "free market fundamentalism".

It is a crusade that has taken Stiglitz from Massachusetts Institute of Technology, to the Clinton White House, to the World Bank, to the Occupy Wall Street camp and now, to London, to promote his new book The Price of Inequality.

And kind fortune has engineered it so that Stiglitz's UK trip has coincided with a perfect example of the repellent consequences of asymmetric information.

When traders working for Barclays rigged the Libor interest rate and flogged toxic financial derivatives – using their privileged position in the financial system to make profits at the expense of their customers – they were unwittingly proving Stiglitz right.

"It's a textbook illustration," Stiglitz said. "Where there are these asymmetries a lot of these activities are directed at rent seeking [appropriating resources from someone else rather than creating new wealth]. That was one of my original points. It wasn't about productivity, it was taking advantage."

Yet Stiglitz's interest in the abuses of banks extends beyond the academic. He argues that breaking the economic and political power that has been amassed by the financial sector in recent decades, especially in the US and the UK, is essential if we are to build a more just and prosperous society. The first step, he says, is sending some bankers to jail. " That ought to change. That means legislation. Banks and others have engaged in rent seeking, creating inequality, ripping off other people, and none of them have gone to jail."

Next, politicians need to stop spending so much time listening to the financial lobby, which, according to Stiglitz, demonstrates its spectacular economic ignorance whenever it claims that curbs on banks' activities will damage the broader economy.

This talk of economic ignorance brings us to the eurozone crisis and the extreme austerity policies being pursued. Stiglitz is depressed. In 2000 he resigned from the World Bank and launched an excoriating attack on the way it and its sister institution, the International Monetary Fund, handled the Asian financial crisis of the late 1990s. He condemned the IMF for imposing brutal and inappropriate adjustment policies on bailed out nations – medicine which, he argued, merely pushed nations further into crisis. "For me there's some nostalgia here," he says.

Does he see any hope for the eurozone, I ask, or is it now heading, inevitably, for a breakup? "It is a train that can still be stopped" he says. "But the relevant question is the politics in Germany. Have they created in their rhetoric a dynamic that makes it difficult to stop? In particular [German Chancellor] Angela Merkel's rhetoric that the crisis was caused by profligacy. She's framed the issue as profligacy, rather than framing it as 'the European system is fundamentally flawed' ".

The central argument of his latest oeuvre is that the huge inequalities of income and wealth that have developed in the US and elsewhere in the West over recent decades are not only unjust in themselves but are retarding growth.

"Every economy needs lots of public investments – roads, technology, education," he says. "In a democracy you're going to get more of those investments if you have more equity. Because as societies get divided, the rich worry that you will use the power of the state to redistribute. They therefore want to restrict the power of the state so you wind up with weaker states, weaker public investments and weaker growth."

It's an elegantly simple proposition. And one that logically points to a radical manifesto of redistribution and higher taxation in the name of the general public good. Time will tell whether this comes to be regarded as another manifestation of towering economic genius. But, for now, crusading Stiglitz has one more weapon in his hands with which to batter down those walls of folly.

Joseph Stiglitz: A life in brief

Born: Gary, Indiana in 1943

Educated: Amherst college, in New England. Later, Massachusetts Institute of Technology

Career: Nobel Prize-winning economist and former member of President Clinton's administration during his time in the White House and, latterly, an adviser to President Obama. He is currently a professor at Columbia University

Family: Married to Anya Schiffrin, a professor at Columbia

FYI: Stiglitz' home town also produced Paul Samuelson, the first American winner of the Nobel Prize for economics

Stiglitz wrote of Samuelson: "Paul allegedly once wrote a letter of recommendation for me which summarised my accomplishments by saying that I was the best economist from Gary, Indiana."

"The Price of Inequality" by Joseph Stiglitz is published by Allen LaneBy

[John Simkin]

Thank you for publishing these articles. This is indeed a big story in the UK. Hopefully the authorities will be calling for crooks like Bob Diamond (already received £100 million for rigging the market in favour of Barclays) to be extradicted to the USA.

[Douglas Caddy]

Banks and banksters claim they are too big to fail. Now they are also claiming they are too big to jail. In reality they are not "too big" but "too connected" to suffer the consequences of their crimes.

[Malcolm Ward]

Banks and banksters claim they are too big to fail. Now they are also claiming they are too big to jail. In reality they are not "too big" but "too connected" to suffer the consequences of their crimes.

True,sad but true.They are in a win win situation.If they go bust,joe public has to bail them out,or should I say the Governments use our taxes to bail them out.If joe public goes bust,the banks will take his/her last penny.Brings a new term to Bank Robbers.

[Douglas Caddy]

Libor scandal may have cost families their homes

Families may have lost their homes as a result of the bank rate-fixing scandal, the housing minister warned last night.

Yesterday, Marcus Agius, the chairman of Barclays, resigned amid furore over the “culture” at the bank. He said: “The buck stops with me.”

By Robert Winnett, Political Editor

The Telegraph

6:50PM BST 02 Jul 2012

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9371150/Libor-scandal-may-have-cost-families-their-homes.html

Grant Shapps said that the scandal may have been a “contributory factor” in some home repossessions following the credit crisis.

The Housing Minister issued the warning as David Cameron and George Osborne announced a fast-track Parliamentary inquiry into the behaviour and culture of Britain’s banks.

The inquiry, which is not the independent judge-led inquiry demanded by Labour, will report back before the end of the year.

Last week, Barclays paid a record £290 million fine after it admitted manipulating a key international interest rate which is used to set borrowing costs for millions of businesses, consumers and investors.

RBS and Lloyds Banking Group are among other banks also facing investigation over their role in fixing the rate, known as Libor. The issue has sparked renewed calls for an overhaul of the banks amid concern over their culture and ethical standards.

Asked yesterday whether the scandal may have contributed to people having their homes repossessed, Mr Shapps said: “All the research into homelessness proves that there are a lot of different causes, of which the Libor rate may have [been] a contributory factor, if indeed it transpires that mortgage rates have been adjusted as a result.”

A Barclays source said they did not believe the bank’s actions had caused anyone to lose their home.

Yesterday, Marcus Agius, the chairman of Barclays, resigned amid furore over the “culture” at the bank. He said: “The buck stops with me.”

However, Bob Diamond, the bank’s chief executive who will face questions from MPs tomorrow, defied calls to step down. In a letter to staff, he apologised directly for the first time for the behaviour of Barclays’ traders and executives.

“I understand why the reaction has been severe,” he said. “No one is more sorry, disappointed and angry about these events than I am.

“I am sorry because we let down the people whose trust we rely on - our customers and clients; our shareholders; our regulators; and the communities in which we live and work.

“I am disappointed because many of these behaviours happened on my watch. It is my responsibility to make sure that it cannot happen again.”

Nick Clegg, the Deputy Prime Minister, indicated last night that he thought Mr Diamond should resign. “People at the top of these big banks who earned lots of money, they had these big fat bonuses when things went well,” he said.

“They have also got to take the rough with the smooth, they have also got to be responsible when things go wrong on their watch.”

The Prime Minister described the scandal as “extremely serious” and said that the Serious Fraud Office (SFO) would consider whether criminal prosecutions should be brought.

However, Mr Cameron ruled out an independent judicial inquiry into the banks, modelled on the Leveson inquiry into media ethics.

The Prime Minister said: “On the unfolding banking scandal here in the UK, we need to take action right across the board.

“I want us to establish a full parliamentary committee of inquiry involving both houses, chaired by the chairman of the Commons Treasury select committee. This committee will be able to take evidence under oath, it will have full access to papers and officials and ministers including ministers and special advisers from the last government.”

The Chancellor said that an independent inquiry would be too costly and time consuming.

“I don’t think a long, costly public inquiry is the right answer; it would take months to set up and years to report,” Mr Osborne said.

“We know what went wrong and we can’t wait until 2015 or 2016 to fix it.”

But, Ed Miliband, the Labour leader, said he was “not convinced” by the approach.

“However able or distinguished, politicians investigating bankers will not command the consent of the British people,” he said. “People are understandably angry about the way banks let them down and I don’t believe the proposed way forward is a way we can build the consensus that is required for real change.”

A senior regulator said last night that the public shaming of Barclays may prove a “watershed moment.”

“Perhaps the reaction to the penalty imposed last week on Barclays will be a watershed moment, the point when the industry realises that it also has to rise to the challenge and to recognise that things have to change,” said Tracey McDermott, acting head of enforcement at the Financial Services Authority

[Douglas Caddy]

Barclays chief executive Bob Diamond resigns

Chancellor George Osborne says Diamond's exit after interest rate scandal was 'right decision for Barclays and for country'

By Jill Treanor, City editor

guardian.co.uk,

Tuesday 3 July 2012 03.45 EDT

Barclays chief executive Bob Diamond has resigned following the interest rate manipulation scandal.

Bob Diamond has resigned from Barclays in the face of relentless political pressure for him to go following the interest rate manipulation scandal.

An attempt by the board to save his position by accepting the resignation of the chairman, Marcus Agius, on Monday has failed. Instead Agius will now become full-time chairman and lead the search for a new chief executive.

In a stunning turnaround – only on Monday the 60-year old chief executive was vowing to stay – Diamond is to go immediately after a 15-year career with the bank and only 18 months as chief executive.

Diamond's resignation was welcomed by the government, which has come under increasing pressure to launch a public inquiry into the scandal. George Osborne, speaking on BBC Radio 4's Today programme, said it was "the right decision for Barclays – and for the country".

"I think Bob Diamond's resignation is the first step towards the new age of responsibility we need to see."

Asked whether he had played a part in Diamond's exit, the chancellor denied it, saying he was not in his job to decide who ran Britain's banks.

Osborne also condemned the City's "corrupt practices", suggesting that criminal cases over the bank's manipulation of the inter-bank lending rate would follow, even though no one responsible has yet been charged with any offence.

Ed Miliband said Diamond's departure was "necessary and right", but repeated his call for a public inquiry.

"This is about more than one man," the Labour leader said. "This is about the culture and practices of the entire banking system which is why we need an independent, open, judge-led, public inquiry."

But Diamond's decision to quit – and the return of Agius – dismayed some in the City.

One investor said: "We are clearly now left with the worst of all possible situations. We don't have a ready-made candidate and a chairman who has no credibility."

After an initial fall this morning, Barclays shares edged 1% higher to 170.5p, reflecting a view that the the worst of the political storm may have been passed. They fell 15% last week, wiping £4bn from Barclays' stock market value.

Diamond, 60, is understood to have decided to go on Monday evening, and informed the board of his decision. But one source said it was a matter of semantics as to whether Diamond went or was pushed.

There is no mention in Barclays' statement of any compensation for Diamond, but shareholders are determined that it should be kept to a minimum. Since Diamond's pay was first disclosed by Barclays in 2006 he has amassed £100m in pay and perks.

The former investment banker Bill Winters, who sat on the independent commission on banking, will be regarded as a candidate to succeed Diamond, whose attempts to focus on the bank's commitment to "citizenship" have speculatorly backfired.

Diamond said: "My motivation has always been to do what I believed to be in the best interests of Barclays. No decision over that period was as hard as the one that I make now to stand down as chief executive. The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen.

"I am deeply disappointed that the impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth. I know that each and every one of the people at Barclays works hard every day to serve our customers and clients."

Diamond will still appear before MPs on the Treasury select committee on Wednesday where he is expected to face tough questioning about when he knew about the bank's manipulation of the London inter-bank offered rate (Libor).

Last week Barclays was ordered to pay £290m to settle claims that it used underhand tactics to try to rig financial markets. The penalties from UK and US regulators, including a record £59.5m fine from the Financial Services Authority, follow allegations it manipulated Libor and Euribor interbank lending, which govern the rates at which banks are prepared to lend to each other in the wholesale money markets.

Agius said: "As chief executive he [Diamond] has led the bank superbly. I look forward to working closely with the chief executives of our businesses and the other members of the executive committee in leading Barclays' world class businesses in serving our customers and clients and delivering value for our shareholders."

The Lib Dem peer Lord Oakeshott said: "This is a great day. Bob Diamond was the greedy gambler, personified. What really matters now is that the criminals inside Barclays, that they are charged and they are convicted and the full force of the law is brought to bear. Stealing money as a banker is the same thing as stealing from a house."

[Douglas Caddy]

Rigged Rates, Rigged Markets

Editorial

The New York Times

July 3, 2012

Marcus Agius, the chairman of Barclays, resigned on Monday, saying “the buck stops with me.” His was the first departure since the British bank agreed last week to pay $450 million to settle findings that, from 2005 to 2009, it had tried to rig benchmark interest rates to benefit its own bottom line.

Mr. Agius was right to go and the bank’s chief executive, Robert Diamond Jr., should follow him out the door. But the investigations cannot stop there.

The rates in question — the London interbank offered rate, or Libor, and the Euro interbank offered rate, or Euribor — are used to determine the borrowing rates for consumers and companies, including some $10 trillion in mortgages, student loans and credit cards. The rates are also linked to an estimated $700 trillion market in derivatives, which banks buy and sell on a daily basis. If these rates are rigged, markets are rigged — against bank customers, like everyday borrowers, and against parties on the other side of a bank’s derivatives deals, like pension funds.

Barclays is only one of more than a dozen big banks that provide information used to set the daily rate for Libor and Euribor. The settlement, struck with regulators in Washington and London and with the Department of Justice, indicates that the bank did not act alone. It shows that unnamed managers and traders of Barclays in London, New York and Tokyo colluded with or prevailed upon bank employees who provide the benchmark data to make false reports. The aim was to bolster Barclays’s trading positions and to aid or counteract other banks’ attempts at manipulation.

The evidence, cited by the Justice Department — which Barclays agreed is “true and accurate” — is damning. “Always happy to help,” one employee wrote in an e-mail after being asked to submit false information. “If you know how to keep a secret, I’ll bring you in on it,” wrote a Barclays trader to a trader at another bank, referring to an attempt to align their strategies for mutual gain.

If that’s not conspiracy and price-fixing, what is?

The Justice Department has left open the possibility of prosecuting officers or employees of Barclays. But it has agreed not to prosecute the bank itself, in part because Barclays was the first to cooperate in the investigation and has agreed to keep cooperating. Such an agreement makes sense only if that cooperation will allow prosecutors to nail other banks that have been involved in setting the rates, including potential cases against Citigroup, JPMorgan Chase and HSBC, and people who work there.

To date, the Justice Department has not distinguished itself in prosecuting major banks or their executives for conduct leading up to and during the financial crisis. But with Barclays now cooperating, the “Libor scandal” is another chance for government prosecutors to unmask and punish financial wrongdoing.

[Douglas Caddy]

The Libor Conspiracy: Were the Bank of England and Whitehall in on it?

By Oliver Wright, James Moore, Nigel Morris

The Independent

Wednesday, 4 July 2012

The Bank of England was dragged into the interest-rate rigging scandal last night after an email was released suggesting it may have encouraged banks to doctor their borrowing costs during the financial crisis.

The email – an account of a conversation between the chief executive of Barclays, Bob Diamond, and the Deputy Governor of the Bank of England, Paul Tucker – appears to show Barclays was under the impression that manipulating rates was being sanctioned at the highest level.

The email was released by Barclays ahead of today's high-profile showdown between Mr Diamond and MPs on the Treasury Select Committee. Mr Diamond is certain to be asked what advice he received from the Bank of England on the reporting of Barclays' Libor rates.

Any suggestion that the manipulation was authorised by Mr Tucker, the Permanent Secretary at the Treasury Sir Nicholas Macpherson or government ministers would be highly damaging and increase pressure for a full public inquiry.

The email came at the end of a day of dramatic developments in which it emerged that:

* Mr Diamond could be in line for a payment of up to £30m after announcing his immediate departure as head of the bank. Barclays was said to be attempting to get its former chief executive to waive up to £20m in bonus payments.

* Mr Diamond's resignation was triggered by a call from the Governor of the Bank of England Sir Mervyn King to Barclays' chairman, Sir Marcus Agius. Some reports suggested Sir Mervyn told Barclays that unless Mr Diamond went, the BoE might not stand as the backer of last resort.

But it was the release of an internal Barclays email which could prove the most significant development.

The email, dated 30 October 2008, was from Mr Diamond, then head of Barclays Capital, to John Varley, Barclays' chief executive, and copied in to Jerry del Missier, then co-head of the investment bank.

In it he details a phone conversation with Mr Tucker who was concerned at Barclays' high reported Libor borrowing costs. Mr Diamond said the Deputy Governor told him he had received calls "from a number of senior figures within Whitehall" to question "why Barclays was always toward the top end of the Libor pricing". Mr Diamond said he told him that the Treasury should be told it was because other banks were under-reporting their own borrowing costs. He said the response was, "Oh, that would be worse".

In the most damaging section of the email Mr Diamond says he was told the calls from the Treasury were "senior", before appearing to give a strong hint that Barclays should also under-report its borrowing rates. He said Mr Tucker told him: "it did not always need to be the case that we appeared as high as we have recently."

But in its submission to the select committee Barclays claimed that was not what Mr Diamond meant by the email. "Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier," Barclays said.

"Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However, Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep Libors so high and he therefore passed down a direction to that effect to the submitters."

In a hastily convened conference call yesterday afternoon Barclays' chairman Marcus Agius refused to provide any explanation for the apparent contradictions within the bank's submission.

"There is a hearing of the Treasury Select Committee tomorrow when this will be addressed," he said.

Despite repeated questions Mr Agius refused to explain further.

The Tories are hoping to embroil the shadow Chancellor Ed Balls in the scandal. Although he was not a Treasury minister at the time he was close to Gordon Brown. Mr Balls said he knew nothing about senior figures in Whitehall applying pressure over Barclays' Libor pricing.

Bob Diamond’s own note of a phone call with Paul Tucker, Bank of England Deputy Governor, 29 October 2008

Mr Tucker reiterated that he had received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the Libor pricing...

I asked if he could relay the reality, that not all banks were providing quotes at the levels that represented real transactions, his response “oh, that would be worse”...

I noted that we continued to see others in the market posting rates at levels that were not representative of where they would actually undertake business...

Shock in the City: The day banks were called to account

7.40am Barclays announces the resignation of chief executive Bob Diamond with immediate effect. Chairman Marcus Agius, who announced his own resignation on Monday, returns to the role and will lead the bank until a replacement is found.

8.01am Barclays' shares fall in early morning trading, dropping around 3 per cent to 163p.

8.18am The Chancellor, George Osborne, who was appearing on Radio 4's Today programme, says he welcomes Diamond's resignation, calling it "the first step towards the new age of responsibility we need to see."

8.40am Labour leader Ed Miliband says that Diamond's resignation was "necessary and right".

8.48am Barclays' shares recover, up 1 per cent to 170p.

11.59am BBC business editor Robert Peston tweets that Governor of Bank of England Mervyn King and the chair of the FSA told Barclays they would be, in Peston's words, "happy for Diamond to go".

2.45pm Barclays' chief operating officer Jerry del Missier resigns.

3.22pm Barclays publishes its submission to the Treasury Select Committee, chaired by Andrew Tyrie, ahead of today's hearing with Bob Diamond. It contains an email from Diamond, detailing a phone call between himself and the deputy governor of the Bank of England, Paul Tucker, in October 2008, in which Tucker appears to tell Diamond that Barclays need not set the Libor rate "as high as we have recently". The email refers to "senior figures within Whitehall" questioning Barclays setting of the Libor rate.

3.25pm Agius says Diamond and del Missier have put "the future of the bank ahead of their careers".

3.40pm Diamond's daughter, Nell, defends her father on Twitter, writing: "No one in the world I admire more than my dad. 16yrs building Barclays. Shame to see the mistakes of few tarnish the hard work of so many."

4.56pm Barclays shares close down 1.35 per cent at 168.4p.

[Douglas Caddy]

Bob Diamond: Labour ministers were warned about Libor fixing

Senior Government ministers close to Gordon Brown were today dragged into the banking scandal after the outgoing chief executive of Barclays claimed they were privately warned about potentially illicit activities.

By Robert Winnett, Political Editor

The Telegraph

7:06PM BST 04 Jul 2012

http://www.telegraph.co.uk/news/politics/9376923/Bob-Diamond-Labour-ministers-were-warned-about-Libor-fixing.html

During almost three hours of cross-examination by MPs, Bob Diamond claimed there had been a series of private conversations with senior Government figures, thought to include Baroness Vadera, during the autumn of 2008.

Mr Diamond claimed that the Government and regulators were repeatedly warned by Barclays that banks were improperly fixing the Libor rate, which is used to set borrowing costs for millions of consumers, businesses and investors.

The Barclays chief executive was forced to resign earlier this week after the bank admitted manipulating the Libor rate and paid a fine of almost £300 million.

However, Mr Diamond indicated that he and Barclays have been unfairly vilified as they had co-operated fully with regulators and been the first to admit wrongdoing.

He said he had personally been unaware until recently that Barclays traders were also manipulating interest rates – at the time, he was warning regulators about the behaviour of rival institutions.

MPs repeatedly questioned why he had not sought to check his own traders’ conduct while raising concerns about other banks.

But, Mr Diamond suggested that other banks were more culpable in the growing rate-fixing scandal – which also implicated the Treasury, Bank of England and Financial Services Authority (FSA), the City regulator.

Senior Labour figures including Baroness Vadera strongly deny having any inappropriate conversations about the libor rate.

They are all now also expected to be called before Parliament in the coming days to provide an account of their actions.

In another day of dramatic developments in the banking scandal:

* Mr Diamond indicated he will not agree to surrender his pay-and-bonus severance package which could mean he leaves Barclays with up to £20 million.

* David Cameron warned that “spivvy and probably illegal activity in the City” meant that “homeowners may have paid higher mortgage rates”.

* George Osborne, the Chancellor, said that those around Gordon Brown were “clearly involved” in the scandal.

* The possibility of a detailed inquiry into banking culture hung in the balance with Labour and the Conservatives in disagreement over whether it should be run by a judge or politicians.

* An MP questioned whether banks had been involved in fixing other financial markets other than global interest rates.

Yesterday, Mr Diamond appeared before MPs on the Treasury Select Committee to answer questions about his resignation, the culture at Barclays and the bank’s role in the rate-fixing scandal.

His appearance came less than 24 hours after Barclays had released a memorandum detailing a conversation between Mr Diamond and Paul Tucker, the deputy governor of the Bank of England.

The document suggested that the Bank had encouraged Barclays to cut the key Libor rate during the credit crisis.

It said that Mr Tucker had been contacted by a “number of senior figures within Whitehall” questioning why Barclays was declaring high Libor rates.

Mr Diamond had been expected to blame the Bank of England for condoning the manipulation of Libor, but the Barclays executive instead claimed that it was senior political figures who had been behind the pressure.

The Barclays executive said that he was concerned in autumn 2008 that the Government may seek to nationalise the bank if they thought Barclays was struggling to raise money.

At the time, Barclays was declaring a Libor rate higher than other banks – which may have been interpreted that it was in financial difficulty. In fact, Mr Diamond believed this was because other banks were manipulating their rates to be lower.

When asked about the conversation with Mr Tucker, Mr Diamond said that he interpreted it as a warning over the Government’s concerns.

He was then asked about the identities of the “senior figures” referred to by Mr Tucker.

“I would only be speculating and it’s not appropriate to do that,” he said. “Paul [Tucker] didn’t mention who he was referring to. I don’t know, senior people."

Later, when asked about Baroness Vadera's role by Michael Fallon, deputy chairman of the Conservative party, he said: "Shriti [Vadera] was very involved in recapitalisation of banks in UK. John Varley [the then Barclays chief executive] was doing most communication with Shriti but she asked to see me also. I would see her and Paul Myners [the City minister] from time to time. There were conversations with them. It was being driven by John.”

Asked again, Mr Diamond said that Mr Varley had a follow-up conversation with “Government” following the discussion with Mr Tucker.

Mr Diamond also added that Barclays had repeatedly warned regulators in Britain and America about the problems with the Libor rate.

“There was an issue out there and it should have been dealt with,” he said. “We were disappointed.”

Mr Diamond’s remarks appeared to back-up earlier comments made by Mr Osborne in an interview with this week’s Spectator magazine.

The Chancellor said: “They [those around Gordon Brown] were clearly involved and we just haven’t heard the full facts, I don’t think, of who knew what when.”

Baroness Vadera was one of the key people close to Mr Brown who spearheaded the Government’s response to the credit crisis.

Yesterday, she strongly denied being involved in conversations about Libor.

“I didn’t speak to Paul Tucker or anyone at the Bank of England about the rate-setting of Libor,” Baroness Vadera said. “I’ve been through my files. I don’t remember anything that would suggest that anyone in government understood some of the allegations that are in this report by rogue bank traders on Libor.”

She added: “it was a completely legitimate concern of government and regulators to worry about the access to credit and the cost of credit to the real economy –that was what the financial crisis was about.

“That shouldn’t be confused in any way with the actions of people, who as I understand for many years from this report, were manipulating how they set Libor.”

[Douglas Caddy]

http://www.rollingstone.com/politics/blogs/taibblog/why-is-nobody-freaking-out-about-the-libor-banking-scandal-20120703?print=true%2F

[Douglas Caddy]

Serious Fraud Office to investigate Libor manipulation

Criminal charges could be brought against traders implicated in the interest rate rigging scandal after the SFO began a formal investigation

By Jill Treanor, City editor

guardian.co.uk,

Friday 6 July 2012 09.47 EDT

Serious Fraud Office is investigating Libor manipulation.

Criminal charges could be brought against traders implicated in the interest rate rigging scandal after the Serious Fraud Office announced on Friday that it had begun a formal investigation into attempts to fix Libor.

The director of the SFO David Green said he had "decided to formally accept the Libor matter for investigation" after reviewing the information provided by regulators which last week fined Barclays £290m for attempting to manipulate the price of the key interest rate known as Libor - the London interbank offered rate.

The investigation is understood to be into the wider market and not just Barclays.

The decision to embark on a formal investigation appears to been taken quickly as on Monday the SFO had said it was considering "whether it is both appropriate and possible to bring criminal prosecutions".

"The issues are complex and the assessment of the evidence the FSA has gathered will take a short time, but we hope to come to a conclusion within a month," the SFO had said on Monday.

The fine related to events that took place between 2005 and 2009 when the bank was found to have manipulated the prices it submitted to help its own traders and rival banks' traders. Part of the fine also related to attempts by the bank to lower its Libor submissions during the 2008 banking crisis to reduce the chance that it was regarded as being in financial difficulty - which it was not.

The decision by Green to take on the investigation comes at a difficult period for the SFO which has suffered a number of high profile setbacks, and as the Barclays chairman Marcus Agius prepares to appear before MPs on Tuesday.

The FSA has been providing information to the SFO and has already made it clear that Barclays is not the only bank under investigation for civil sanctions such as fines of the kind imposed on Barclays. On the day the Barclays fine was announced Tracey McDermott, acting director of enforcement and financial crime at the City regulator, said that a "number of other significant cross-border investigations in this area" were under way involving other banks. "The action against Barclays should leave firms in no doubt about the serious consequences of this type of failure," she said.

At this week's treasury select committee, Bob Diamond, the former boss of Barclays, had said: "I understand that there will be follow-up criminal investigations on certain individuals ... It's not up to us, but we are certainly not going to stand in the way of it".

[Douglas Caddy]

Bank Scandal Deepens

Editorial

The New York Times

July 6, 2012

The settlement between government authorities and Barclays over the bank’s attempts to rig benchmark interest rates drew a picture of a bank that was negligent and corrupt at various times and to varying degrees. Unfortunately, as big banks go, that comes as no shock.

It would be a shock if regulators and prosecutors found the resources and willingness to go wherever the rate-rigging scandal leads, even to the upper echelons of the world’s biggest banks and powerful central banks, including the Bank of England and the Federal Reserve.

On Wednesday, the deposed chief executive of Barclays, Robert Diamond Jr., presented documents and testimony to a British parliamentary committee, saying that it had advised both the Bank of England and the Federal Reserve Bank of New York about lowballed interest rates by banks across Wall Street. The disclosures speak to the overly cozy relationships between authorities and bankers, before, during and since the crisis. To be thorough, further investigations into rate-manipulation will need to answer questions about what the authorities knew about rate-rigging and when they knew it.

We are not minimizing misconduct by Barclays or perhaps other banks. More than 10 big banks are being investigated for their role in setting benchmark rates, including JPMorgan Chase, Citigroup and UBS. Authorities suspect big banks reported false rates during the crisis to squeeze out profits and mask their true financial health.

That would be a huge fraud, so it is encouraging that the Commodity Futures Trading Commission, which started investigating Barclays in 2008, is reportedly building its cases against other banks on a bank-by-bank basis, rather than seeking one global settlement. That approach can avoid the drawback of previous group settlements, which have obscured as much as they have revealed. It is the right approach if other regulators and the Justice Department are serious about the rate-rigging case, including the question of whether central bankers looked the other way.

[Douglas Caddy]

Exclusive: Barclays insider lifts lid on bank's toxic culture

Whistleblower: bosses ‘would have known’ what the traders were doing

By James Moore

The Independent

Saturday, 7 July 2012

A former senior Barclays employee today exposes the "culture of fear" that operated at the bank and claims Bob Diamond would have been aware of his traders' activities.

Speaking exclusively to The Independent, the banker alleges that senior executives would have known of Libor fiddling in 2008.

The Serious Fraud Office announced yesterday that it had launched a criminal inquiry into interest rate fixing amid increasing clamour for rogue bankers to be prosecuted.

Speaking on condition of anonymity, the banker says that senior Barclays bosses would have been told about Libor concerns because staff were drilled to pass anything untoward up to their managers. Failure to do this meant the sack.

"Libor fixing was escalated by several people up to their directors, they would then have escalated it up the line because at Barclays if you don't escalate, and it is found out that you haven't, it is grounds for disciplinary action. You will be dismissed."

The banker also describes the dark side of working for Mr Diamond's bank. He spoke of management by intimidation, even physical threat, punishing hours and a ruthless grading system that left workers in terror of their annual appraisals. Employees were often reduced to tears by the end of a day, but only when they had departed from the building. Such weakness would not be tolerated inside.

The SFO gave no details about who would be the subject of its investigations. It said: "The SFO director, David Green QC, has today decided formally to accept the Libor matter for investigation."

Danny Alexander, Chief Secretary to the Treasury, said he was "delighted" by the decision, which helped to strangle a muted recovery in the bank's shares over the past couple of days. Barclays finished down at 164.75p.

Investigations into other banks are continuing on both sides of the Atlantic. Misreporting of Libor figures is thought to have been common practice in the run-up to the financial crisis. Mr Diamond has claimed the scandal engulfing Barclays could put other banks off alerting regulators about such issues in future. He has argued that Barclays has been punished for being a "first mover".

Mr Diamond has always denied prior knowledge of Libor fixing and told MPs on Wednesday he was only made aware of it last month.

Connections between Mr Diamond and Barclays are understood to have been severed. "He's history," said a source. The scandal led to heated exchanges in the Commons between the Chancellor, George Osborne, and shadow Chancellor, Ed Balls. A parliamentary inquiry into the affair, as opposed to a judge-led public enquiry advocated by Labour, was agreed on Thursday.

Lord Ashcroft, a Tory peer, raised the temperature ahead of Monday's appearance before MPs of Paul Tucker, deputy governor of the Bank England. A note of a conversation between Mr Tucker and Mr Diamond, published by Barclays last week, appeared to suggest that senior government officials were endorsing Libor fixing.

Writing on the Conservative Home website, Lord Ashcroft criticised the Tory approach of "trying to establish shady motives on the part of Labour for demanding one type of inquiry rather than another; speculating about the role of former Labour ministers; and wondering what sort of 'senior figures' a Bank of England official was referring to in a conversation with the Barclays chief executive four years ago". He added: "The Libor scandal happened on Labour's watch, but voters have already passed judgement on Labour's time in office."

Mr Tucker is expected to face a grilling from MPs who will want to know exactly who the officials he talked to Mr Diamond about were.

Mr Diamond said he viewed the memo as a warning that the Barclays Libor submissions, which were higher than those of other banks, were worrying government officials.

Last night, a Barclays spokesman pointed out that Rich Ricci, head of the investment banking division, conducted the investigation into the Libor issue and reported to the board. Mr Diamond could not be contacted in time for publication.

Ricci’s tears: Banker who broke down

He may have the toughest name in banking, but Rich Ricci has feelings, too. The Barclays' investment banking boss apparently cried as he tried to reassure staff the bank would be able to pull through the outrage after the Libor rate-rigging scandal.