Serious Fraud Office probeslegality of rate-rigging by UK banks

BRITAIN’S biggest banks were embroiled in a criminal investigation last night after the ­Serious Fraud Office confirmed it had opened an inquiry into the rate-rigging affair.

The announcement from SFO director David Green, QC, came at the end of a week of resignations and political debate.

Barclays was fined £290 million by US and UK regulators for manipulating the Libor rate, the key lending rate which affects mortgages and loans. The claims led to the resignation of Barclays chief executive Bob Diamond and a bitter row in Westminster over banking ethics.

Last night the Treasury welcomed the SFO’s decision, which could ultimately lead to criminal prosecutions. Treasury Chief Secretary Danny Alexander said: “The Financial Services Authority has carried out a detailed investigation and the SFO has the opportunity to take forward the investigation. We will make sure they have all the resources they need to carry this investigation out to the full.”

Barclays shares continued to suffer yesterday, falling 2 per cent on the FTSE 100, despite some brokers urging investors to buy.

The SFO revealed earlier this week it had been working closely with the FSA and was weighing up whether it could proceed with criminal prosecutions.

Labour leader Ed Miliband is pushing for an independent inquiry into the banking scandal despite MPs rejecting the demands in a heated debate on Thursday.

He said that while the party would co-operate with a parliamentary investigation, its remit was too “narrow” and a judge-led inquiry was still needed.

Mr Miliband also defended the conduct of shadow chancellor Ed Balls after Chancellor George Osborne claimed former prime minister Gordon Brown’s “inner circle” had questions to answer over apparent pressure on Barclays to post lower Libor rates during the credit crunch.

Bank of England deputy governor Paul Tucker and Barclays chairman Marcus Agius, who announced his intention to resign after a replacement for Mr Diamond is found, will give evidence on the rate-rigging scandal to the Treasury Select Committee next week.

Mr Tucker was dragged into the affair by Mr Diamond, who disclosed a record of a conversation they had in October 2008 in which the deputy governor relayed concerns in Whitehall about Barclays’ high Libor rates.

The American banker said Mr Tucker was trying to warn him “there are ministers in Whitehall who are hearing that Barclays is always high, that could lead to the impression that you are not funding yourself”.

Barclays was dealt another blow as agencies Moody’s and Standard & Poor’s downgraded their outlook for the bank’s credit rating in the wake of Mr Diamond’s departure, fearing this, with the departures of Mr Agius and chief operating officer Jerry del Missier, could lead to the break-up of its powerhouse investment arm.

Mr Diamond admitted feeling “physically ill” when he discovered traders had fiddled the key rate but denied being “personally culpable”.

He blamed a “series of unfortunate events” for his shock departure as he fended off calls to give up his bonuses. He is said to have received £120 million from Barclays since joining in 2005.