Libor scandal: How negative publicity about state of Barclays’ financial health sparked rate-rigging scandal

By SCOTT MACNAB
Published on 03/07/2012 01:22

Senior managers at Barclays instructed staff to submit improperly low Libor contributions in a bid to stave off negative publicity about the bank’s financial health.

The practice was revealed in the US department of justice’s 23-page “Finding of Facts” on the banks, helped lead to Barclays’ £290 million fine.

According to the document – an appendix to the main report – staff were instructed to enter the inaccurately low submissions by managers in the treasury department and on the money markets desk from late August 2007. They did so until at least January 2009.

If Libor submissions are relatively high, it could suggest a bank is paying a relatively high amount to borrow funds and therefore increase the perception it is experiencing financial difficulties.

The report said: “In early September 2007, Barclays received negative press coverage concerning Barclays’ high Libor submissions in sterling, euro, and dollar.

“A news article questioned Barclays’ liquidity position and its visits to the Bank of England’s window [its emergency liquidity facility] and noted that Barclays’ share price had fallen. Senior managers within Barclays expressed concern about the negative publicity.”

The report said in the wake of the bad press, managers gave staff the instruction to submit lower Libor contributions “in line” with other banks “in order to reduce the reputational risk associated with proper, higher Libor submissions”.

It added: “In other words, as Barclays employees stated in internal communications, the purpose of the strategy of under-reporting dollar Libors was to keep Barclays’ ‘head below the parapet’ so that it did not get ‘shot’ off.

“The intent of the Barclays managers who gave the instruction and the submitters who contributed improperly low rate submissions in response to the instruction was to influence Barclays’ benchmark interest rate submissions, not the resulting fixes.”

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