Barclays Plc (BARC)’s investors aren’t joining lawmakers in calling for Chief Executive Officer Robert Diamond to quit, though they say record fines for Libor manipulation threaten to doom his turnaround plan for the bank.
Shares of the U.K.’s second-biggest bank by assets plunged 16 percent yesterday, the most in three years, on speculation Diamond’s job is at risk and that billions of dollars of lawsuits will follow the $451 million in penalties imposed by the U.S. and U.K. Regulators worldwide are probing at least five other firms, including Citigroup Inc. (C) and Deutsche Bank AG. (DBK)
“He’ll probably weather the storm,” said Julian Chillingworth, who helps manage 16 billion pounds ($25 billion) at London’s Rathbone Brothers Plc, including Barclays shares. “There’ll be more regulation. Governments globally are very much on the banks’ case. It may turn out he’s slightly bailed out as other banks have to come clean.”
Diamond, 60, ran the London-based bank’s securities unit during the period probed. He and three top lieutenants will forgo their bonuses this year as a result of the fines, two months after his 12 million pound pay package for last year earned scorn from shareholders and lawmakers. After taking over as CEO in 2011, Diamond vowed to boost Barclays’ return on equity, a profitability measure, to 13 percent, about double last year’s 6.6 percent ratio.
Barclays fell 1.7 percent to 162.85 pence in London trading, valuing the lender at 19.9 billion pounds. In the wake of yesterday’s plunge, Barclays is now this year’s worst performer in the five-member FTSE 350 banks index, with a 7.5 percent decline.
“People have to take responsibility for the actions and show how they’re going to be accountable,” British Prime Minister David Cameron said in Brussels yesterday. “It’s very important that goes all the way to the top of the organization.”
Barclays declined to comment further. A voicemail left for Chairman Marcus Agius wasn’t returned.
Diamond has agreed to appear at a meeting of U.K. lawmakers to highlight “what we have done and are doing to put things right,” he said in a letter yesterday to Andrew Tyrie, chairman of Parliament’s cross-party Treasury Committee.
“I appreciate that the nature of the settlements disclosed yesterday raises many questions, and I welcome the opportunity to provide answers,” Diamond wrote.
Royal Bank of Scotland Group Plc, UBS AG (UBSN), ICAP Plc (IAP), Lloyds Banking Group Plc (LLOY), Citigroup and Deutsche Bank are all being investigated in their role in how the London interbank offered rate is set. Though all of the banks’ share prices declined yesterday, none approached Barclays’ plunge.
“If Bob Diamond does go, what does that mean for Anshu Jain, Stephen Hester? What happens to Vikram Pandit? How ridiculous do you want to make this?” said Christopher Wheeler, a London-based analyst at Mediobanca SpA, referring to top executives of Deutsche Bank, RBS and Citigroup respectively.
A total of 18 banks are surveyed as part of the process of determining Libor and related rates. Libor, a benchmark for more than $350 trillion of financial products globally, is set by averaging out submissions in a poll of banks, who are asked how much it would cost them to borrow from each other for different periods of time, from overnight to one year.
In 2008, in the midst of the financial crisis, “a member of senior management” instructed Barclays’ Libor staff to lower their submissions to make them match other banks and dispel concern about the lender’s health, the U.S. Commodity Futures Trading Commission said in a settlement document.
Matthew Oakeshott, a member of the U.K. ruling coalition’s Liberal Democrat party who sits in Parliament’s upper House of Lords, said Diamond should resign. Paul Myners, who also sits in the House of Lords for the opposition Labour Party, said Barclays executives should face criminal charges.
“What did he know and when did he know it?” Chancellor of the Exchequer George Osborne said of Diamond, speaking in Parliament in London yesterday. Osborne also said prosecutors at the Serious Fraud Office are now investigating the case.
Diamond had already scrapped in February a timeline of reaching his profitability target by 2013. Barclays was the last British consumer bank to have kept such a target as Europe’s debt crisis and tougher regulation eroded earnings.
“It does question the position of the top people there, but it’s difficult to see merely changing the boss would be the complete answer,” said Jane Coffey, who oversees 12 billion pounds as head of equities at Royal London Asset Management Ltd., which holds Barclays in its index funds. “The regulatory environment will become a lot tougher for them. That will ensure they will not be making the same money they were before.”
It’s also unclear who could replace Diamond, according to Chirantan Barua, an analyst at Sanford Bernstein Research in London. Chief Operating Officer Jerry del Missier, Finance Director Chris Lucas and corporate and investment banking chief Rich Ricci are also forgoing bonuses this year due to the fines.
“The simple fact is that there is no internal candidate” with the “industry experience, much-needed political credibility and expertise in running a large capital markets business,” Barua wrote in a note yesterday. “This will remain a driver of volatility for the stock as long as the pressure from political parties remains.”
In the Libor investigation, the U.K. Financial Services Authority said derivatives traders requested false submissions from their colleagues as they were “motivated by profit and sought to benefit Barclays’ trading positions.”
In another blow to Barclays today, the lender will join RBS, Lloyds and HSBC Holdings Plc in compensating small and medium-sized businesses improperly sold interest-rate derivatives following a probe by the FSA. The regulator, which didn’t say how much would be paid out, FSA found “serious failings” by the banks dating back to 2001.
Calls for Diamond to step down may not abate, especially if lawsuits follow the regulatory penalties and possible criminal charges.
“Pressure for change could continue to mount as industry observers digest the released evidence,” Goldman Sachs Group Inc. analysts said in a note to clients. “We would expect any changes to the senior management team at Barclays to be negatively taken by the market.”
Diamond told analysts led by Chris Manners of Morgan Stanley he has no plans to step down in a meeting yesterday. Manners and Huw Van Steenis met Diamond to talk about the impact of the publication of the bank’s Libor settlement, the analysts wrote in a note to clients today.
“The CEO says he does not intend to stand down,” said the note. “Further, the CEO was appointed 18 months ago with the full approval of the FSA in knowledge of this investigation.”
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