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Libor scandal: Bank of England condoned rate-fixing, says former Barclays chief Bob Diamond

Bob Diamond is set to be grilled by MPs today. Picture: Getty Images

Bob Diamond is set to be grilled by MPs today. Picture: Getty Images

  • by EDDIE BARNES
 

FORMER Barclays chief executive Bob Diamond is set to drag the British political and banking establishment into the interest rate fixing scandal today, after he and another senior exectutive dramatically quit over their roles in the affair.

• Senior Barclays executives embroiled in rate fixing scandal after e-mail detailing conversation between Bob Diamond and BoE’s Paul Tucker emerges

• Jerry del Missier follows Bob Diamond out the exit door at Barclays in wake of e-mail that Government sources call “explosive”

• Mr Diamond to appear before Commons Treasury select committee today

Last night, Barclays revealed how its most senior executives became embroiled in rate fixing when it released an e-mail and details of a telephone conversation between Mr Diamond and Paul Tucker, deputy governor of the Bank of England, in 2008.

In the e-mail, Mr Tucker is reported as saying that “it did not need to be the case” for the rate at which the bank borrows short-term money – known as the Libor – to be as high as it was.

According to the e-mail, Mr Tucker, tipped to succeed Sir Mervyn King as the Bank’s next governor, had told Mr Diamond he was coming under pressure from “senior figures at Whitehall” who were questioning why Barclays was registering such high rates of interest.

The latest developments in the rate-fixing scandal came as the Crown Office in Scotland revealed it was now conducting an investigation into the banking sector as a whole, in response to “recent developments”.

Barclays claims the phone calls in 2008 at the height of the banking crisis reflected fears that the high borrowing costs registered by Barclays at the time were slashing confidence in the bank’s solvency and could have sparked a market panic in the 300-year-old institution.

Also in the e-mail, Mr Diamond explicitly accuses his competitors of fidding their own figures to suggest they had market confidence. Barclays said yesterday that it had been this e-mail which had prompted a senior executive below Mr Diamond, Jerry del Missier, to artificially lower its figures.

Mr del Messier joined Mr Diamond in quitting the bank yesterday, capping yet another day of turmoil in the City.

Government sources last night said the e-mail was “explosive”. It is sure to place fresh questions over whether the then Labour government, led by Gordon Brown, pressed banks such as Barclays to manipulate the books in an attempt to calm the markets over Britain’s perilous financial position.

Mr Diamond is to give further details when he appears before the Commons Treasury select committee today, with MPs set to demand answers about why the bank deliberately manipulated the Libor.

Meanwhile, Justice Secretary Ken Clarke confirmed that the Serious Fraud Office was now investigating the scam, amid legal advice from QCs that there are potential criminal charges to be brought.

The dramatic events began before 8am yesterday, when Mr Diamond unexpectedly announced his resignation, following claims that Sir Mervyn had recommended his exit.

A few hours later, Barclays also announced the resignation of Mr del Missier, its chief operating officer, who was president of Barclays Capital at the time the interest rate fixing was going on.

Mr del Misser was the most senior figure at the bank to sanction the rigging of the Barclays Libor, admitted the bank’s chairman Marcus Agius, who is also stepping down over the affair.

The bank then released a nine-page memo setting out its position ahead of today’s committee hearing. In it, Barclays suggests that in 2008, during the banking meltdown, rival institutions were massaging their own rates downwards.

The memo notes that Barclays was “disappointed that no effective action was taken, notwithstanding our having raised these issues with various authorities”.

The memo then states that on 29 October, 2008, Mr Diamond was called by Mr Tucker. Mr Diamond’s e-mail note of the conversation declares: “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. His response was, ‘you have to pay what you have to pay’. I asked if he could relay the reality, that not all banks were providing quotes at the levels that represented real transactions. His response was, ‘oh that would be worse’.”

The e-mail goes on: “Mr Tucker stated the levels of calls he was receiving from Whitehall were ‘senior’ and that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”

Mr Diamond’s claims come amid reports that Mr Brown’s economic adviser Shriti Vadera had circulated a paper at the time on “Reducing Libor”. Slashing the rate at which banks borrowed money from each other would be, she said, “a major contribution to the stability of the banking system and to the health of the economy”.

It is understood that Baroness Vadera does not to have any recollection of speaking to Mr Tucker at the time.

All attention is certain to focus on Mr Diamond’s appearance before MPs today.

The 60-year-old American said yesterday: “I am deeply disappointed. The impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth. 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.”

Chancellor George Osborne said: “I think he has clearly taken the view that Barclays has a better future without him than with him. But I think it is the right decision for Barclays, I think it is the right decision for the country.”

Speaking at the FSA’s annual meeting, chairman Lord Adair said: “The Libor scandal has caused a huge blow to the reputation of the banking industry.

“The cynical greed of traders asking their colleagues to falsify their Libor submissions so they could make bigger profits has justifiably shocked and angered people, in particular when we are facing hard economic times provoked by the financial crisis.”

As well as today’s committee hearing, MPs will vote on whether to endorse David Cameron’s plan for a cross-party banking inquiry by MPs and peers.

The hectic day of disclosures came with Labour leader Ed Miliband having demanded a full public inquiry into the affair.

 

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