Barclays fined £290m for rigging lending rates in ‘casino’ operation

BARCLAYS Bank has been fined a record sum of £290 million after being caught trying to rig the interest rates at which banks lend money to each other.

The penalties from by UK and US authorities followed “serious and widespread” misconduct involving allegations about the manipulation of bank rates that influence the costs of loans and mortgages within the UK.

An investigation by city watchdog the Financial Services Authority (FSA) uncovered a series of e-mails that revealed a chummy, casual relationship between traders attempting to fix lending rates

Barclays chief executive Bob Diamond has apologised for the bank’s actions and said he would waive his expected multi-million pound bonus for the current financial year, after he was he was accused of running the so-called “casino” part of the operation at the time of the wrongdoing.

The bank was fined £59.5m – the largest ever imposed by the FSA – and agreed to settle a penalty of $200m (£128.2m) with the Commodity Futures Trading Commission and $160 m (£102.5m) with the US Department of Justice.

Between 2005 and 2008, Barclays staff who submitted estimates of their own interbank lending rates were often 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 having to borrow at noticeably higher rates than its competitors.

Mr Diamond, whose bonus last year was £2.7m, insisted Barclays had taken swift action to fix the problems and co-operated extensively with the authorities during the investigation,. He said last night: “I am sorry that some people acted in a manner not consistent with our culture and values. The events which gave rise to today’s resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business.”

There was speculation yesterday that Barclays will not be the only bank to be punished as part of the inquiry into the misconduct, which also relates to the Euro Interbank Offered Rate (Euribor). Officials are investigating whether other banks deliberately tried to manipulate Libor – London Interbank Offered Rate – by submitting inaccurate data during the financial crisis, including holding down their rates to make them appear safer than rivals.

The Libor and Euribor 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.

The scathing report the FSA published yesterday said: “The integrity of benchmark reference rates such as Libor and Euribor is of fundamental importance to both UK and international financial markets. Firms making submissions must not use those submissions as tools to promote their own interests.”

Tracey McDermott, FSA acting director of enforcement and financial crime, said: “Barclays’ misconduct was serious, widespread and extended over a number of years. [Its] behaviour threatened the integrity of the rates, with the risk of serious harm to other market participants.”

The chairman of the Commons Treasury committee, Andrew Tyrie, said it would be summoning Mr Diamond to explain what had happened. “This is appalling. It just beggars belief that this sort of attitude should have been so widespread,” he said.