Comment: Quixotic, naive or ill–informed, take your choice

The man whose lightning-rod soundbite to the same MPs in January 2011 looks more risible now than it seemed even back then told the committee this time round that he loved Barclays. Well, they do say you hurt the one you love.

Diamond’s quixotic interpretation was that it was a tribute to the bank’s culture that it moved quickly and transparently when the interest rate-rigging scandal came to light, rather than dwelling on why it was allowed to take place at all.

That sub-culture, shall we call it, was one where traders and submitters rigged rates to make trading positions appear better; they were not shopped by trading desk supervisors to Barclays compliance officers; so the problem was not passed up to the bank’s senior management. Silence was golden. People didn’t tend to talk a lot at the bank at all, it seems. Deputy Bank of England Governor Paul Tucker’s phone conversation with Diamond would look to many people in the street as a regulatory nod and a wink that Barclays could “low-ball” its Libor rates as politicians were getting twitchy about the bank’s perceived financial strength at the height of the 2008 taxpayer bailout of some rivals.

The Barclays chief said he did not see it that way but admitted he felt the “Whitehall sources” referred to by the Bank man were “ministers”.

After passing on the contents of the conversation to his key investment banking operating lieutenant, Jerry del Messier, Diamond and him never discussed the apparent profound implications for inter-bank lending rate flexibility again, apparently.

It is not quite “Libor sleeps with the fishes”, but there are resonances of a financial version of the 1970s film classic The Godfather.

Tucker is going to appear at the Treasury committee in the near future and it will be interesting what his take is on the intriguing interchange with the then-Barclays boss.

Diamond said the behaviour of the traders and Libor-submitters involved was reprehensible and he was angry and disappointed. And, for part of the scandal, it looks, he was also uninformed and/or naive.

Economy is losing too many service games

LONG gone are the days when Britain’s services sector rode to the rescue of the economy. As manufacturing has steadily diminished in significance in the gross domestic product (GDP) cake – from about 30 per cent in 1970 to 18 per cent by 1997, and now just 12 per cent – we have got used to pinning most of our hopes on services, which accounts for some 75 per cent of the economy.

But, as Britain struggles with its second recession in a little over two years, it is clear that services is not taking up the slack of a manufacturing sector hit by the problems in its main export market of the eurozone.

Yesterday’s latest data is depressing, showing that services – everything from financial services to retail and transport and leisure – slowed markedly to an eight-month low in June.

This suggests the odds have narrowed sharply on two things: the UK failing to avoid yet further contraction in the second quarter of 2012; and more quantitative easing to help the economy from the Bank of England at its monetary policy committee meeting today. The Queen’s diamond jubilee in June obviously held back services performance but, even excluding that exceptional factor, the data was weak.

Business growth fell to an 18-month low, employment growth slowed and services’ business expectations are at a six-month low.

Firms are having to cut prices to encourage business, which may be good for Britain’s inflation figure but sends out a worrying signal about prospects for a sector it was hoped would offset the bite of the public sector austerity programme.

The recent CBI financial services survey, covering 10 per cent of the economy, revealed last week that business optimism had noticeably declined.

With manufacturing weak north and south of the Border, and fresh data yesterday also showing construction under the cosh, it all suggests we are entering the third quarter of 2012 with feeble economic momentum at best and looming stagnation at worst.