Banking scandal: Fraud office called in over Barclays rate-rigging

SERIOUS Fraud Office investigators were in talks with the City watchdog last night over the Barclays interest rate-rigging scandal as politicians condemned the culture of greed at the bank.

• Politicians hit out at culture of greed at Barclays bank

• Increasing calls for chief executive Bob Diamond to step down

• David Cameron stresses need for those responsible to be identified

Chancellor George Osborne revealed the SFO was holding discussions with the Financial Services Authority (FSA), raising the possibility of criminal proceedings being taken against bankers who manipulated interest rates to increase trading profits.

Anger over the scandal – which is likely to have seen mortgage holders, credit card users and businesses charged too much for their loans – increased the clamour for the bank’s chief executive, Bob Diamond, to quit.

Last night, Barclays shares dropped 15.5 per cent – wiping £3 billion from its market value – as investors ditched the stock amid fears that people would claim damages against the bank.

• Read chief executive Bob Diamond’s letter to the Treasury Select Committee

The welter of damaging publicity that has engulfed the banking sector is set to continue today when the FSA publishes evidence suggesting that some institutions mis-sold complex financial products, called interest-rate swaps, to small businesses. Mr Osborne said the rate-rigging scandal, which was first exposed on Wednesday, was “a shocking indictment of the culture of banks like Barclays in the run-up to the financial crisis”.

The Chancellor said that Barclays executives must “pay the price” for the manipulation of the London Inter-Bank Offered Rate (Libor) and Euribor, the interest rates that banks pay on the money they borrow from each other.

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.

They can also affect lending rates to the public and can, for example, affect some mortgage deals.

Earlier this week British and US regulators found that Barclays traders repeatedly made false reports between 2005 and 2009 in order to push Libor and other interest rate measures higher or lower than their true rate.

This increased traders’ profits and protected Barclays’ reputation at a time when the banking sector was in crisis. Mr Diamond – who was in charge of Barclays Capital at the time the breaches occurred – apologised and said nothing was more important to him than “having a strong culture at Barclays”. He has said he will forgo his bonus this year.

Senior executives Jerry del Missier, Rich Ricci and chief financial officer Chris Lucas will also waive their 2012 bonuses.

A trail of e-mails, instant messages and phone transcripts disclosed by the FSA showed how traders requested Barclays make changes to the Libor rate to boost their profits, while promising each other bottles of Bollinger champagne.

Mr Osborne said the traders’ communications “read like an epitaph to an age of irresponsibility”. He added that ordinary people had paid a “very heavy price” because of the bank’s behaviour and executives must now answer for their greed.

Speaking the day after Barclays was fined £290 million by the FSA and US regulators, Mr Osborne told MPs that more financial institutions are likely to be dragged into the scandal, saying Barclays was “not alone” in efforts to rig a key interest rate benchmark. Royal Bank of Scotland, HSBC, UBS and Citigroup are also being investigated.

The Chancellor outlined a series of measures that the UK government was considering in an attempt to prevent a repetition of the behaviour, including the possibility of applying criminal sanctions to directors of failed banks “where there is proven criminal negligence”.

During a visit to a police call centre in south London yesterday, Met Commissioner Bernard Hogan-Howe was asked whether he would launch an investigation into Barclays and replied: “If there were any complaints I’m sure we’d consider it.”

Mr Osborne also said the law many be changed to allow the FSA to prosecute traders under criminal law for manipulating Libor. Mr Osborne said: “Through 2005, 2006 and early 2007 we see evidence of systematic greed at the expense of financial integrity and stability.”

Fines paid to the FSA are used to reduce the levy paid by other institutions, but Mr Osborne said he was considering changes to ensure penalties “of this nature go to help the taxpaying public not the financial industry”.

Officials would examine whether the move could be backdated to cover the fine imposed on Barclays.

Mr Osborne said: “It is clear that what happened in Barclays, and potentially other banks, was completely unacceptable, was symptomatic of a financial system that elevated greed above all other concerns and brought our economy to its knees.”

He said that “a number” of individuals were under investigation by the FSA and added that “this number is expected to increase”. The SFO is aware of the matter and is in talks with the FSA, he confirmed.

The Chancellor said Mr Diamond had “some very serious questions to answer”. He said: “What did he [Mr Diamond] know and when did he know it? Who in the Barclays management was involved and who, therefore, should pay the price?”

The Treasury select committee has asked Mr Diamond to appear and Mr Osborne said: “We all want to hear his answers.”

Earlier, Prime Minister David Cameron described the situation as an “extremely serious scandal”. He added: “They’ve had a very large fine and quite rightly. But frankly the Barclays management team have some big questions to answer.

“How did this happen? Who was responsible? Who’s going to be held accountable for it? These are issues they need to determine and determine quite rapidly.”