King Succession Race for BOE Roiled as Libor Furor Rages
Chancellor of the Exchequer George Osborne’s hunt for the next Bank of England governor got tougher as the Libor-rigging scandal cast a shadow over potential contenders for the job, including the top internal candidate.
With Bob Diamond resigning as chief executive officer of Barclays Plc (BARC), the lender’s acknowledged falsifying of global interest rates means greater scrutiny of bankers and regulators hoping to succeed Mervyn King atop the U.K. central bank.
Paul Tucker, one of King’s deputies and a front-runner to replace him, is being drawn into the Libor furor over his 2008 communications with Diamond. Other possible contenders whose prospects may be affected include John Varley, Diamond’s predecessor, and former HSBC Holdings Plc (HSBA) Chairman Stephen Green, who chaired the British Bankers Association at the time.
“It would make it very difficult to select somebody if they have been implicated in what amounts to wholesale Libor- fixing,” said Mark Garnier, a Conservative Party lawmaker who sits on Parliament’s Treasury Committee, the panel that Diamond testified to today in London.
King retires in June and government officials have signalled the formal process for choosing his replacement won’t start until the fall. The search will now be carried out in the wake of a probe by lawmakers into British banking announced this week by Prime Minister David Cameron.
Libor, which is determined by 18 banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in various currencies, is the benchmark for more than $360 trillion of securities, including mortgages, student loans and swaps. Barclays was fined $455 million last week in the U.K. and the U.S. after it admitted to submitting false Libor rates.
“Depending on what comes out of the Libor inquiry, the government may say that instead of a safe pair of hands, what we want is someone who will shake the industry up,” said Chris Roebuck, a professor at Cass Business School in London.
Barclays yesterday released a memorandum of a 2008 telephone call that purported to show Tucker hinting that the lender could lower its Libor rates and noting unnamed government officials had asked him why its submissions were so high. That was interpreted by Chief Operating Officer Jerry Del Missier, who also quit yesterday, as reason to tell his rate-setters to lower their quotes, Barclays said.
“The bank sees everything and it’s inconceivable it didn’t know the Libor recalibration was going on,” said Dan Conaghan, author of the book, “The Bank: Inside the Bank of England.” “Paul Tucker’s star is on the wane and I suspect the government will go for a safer option.”
“As I understand reports of both the FSA and the American regulators, they do not believe Paul Tucker acted with anything less than total propriety,” said Andy Love, a U.K. Labour Party lawmaker who also sits on the Treasury committee. “But if anything should emerge, then clearly that will be an influential part of the discussion over who the most appropriate successor to the governorship should be.”
Tucker’s three-decade career at the Bank of England and knowledge of its workings throughout the financial crisis weigh in his favor, said Richard Barwell, an economist at Royal Bank of Scotland Group Plc and a former Bank of England official.
“Someone who was head of a bank in recent years probably didn’t have to spend a lot of time thinking about central bank operations and the things you’d need to know to lead a central bank,” he said.
Other candidates from across the financial services industry may also face scrutiny. Varley was Diamond’s predecessor as Barclays CEO from 2004 to 2010. Green, now a trade minister in Cameron’s government and adviser to Osborne on banking, was then the chairman of the BBA, the lobby group that coordinates Libor.
“It’s pretty unlikely the next governor will be someone from the City,” said Paul Myners, a former U.K. Treasury minister and now chairman of asset manager Liberty Ermitage Group. “The shortlist just got even shorter as John Varley and Stephen Green fall off it.”
A spokesman at the Bank of England, where Tucker is deputy governor for financial stability, declined to comment. Varley didn’t respond to messages left for him at the Employers’ Forum on Disability, where he is president. A spokesman at U.K. Trade and Investment, the government agency Green is responsible for as trade minister, declined to comment.
Speculation on potential successors to King has intensified as his retirement date nears. Aside from Tucker, Varley and Green, other names mentioned include former U.K. civil service chief Gus O’Donnell, Bank of Canada Governor Mark Carney, FSA Chairman Adair Turner and Jim O’Neill, chairman of Goldman Sachs (GS) Asset Management.
O’Neill said last month he’d consider replacing King if asked. O’Donnell has said that he would use his new job as an advisor at TD Bank Group to learn about banks and regulation as he considers whether to apply.
Tucker leads the race at bookmaker Paddy Power Plc (PAP), with odds of 4/5. That means a 1-pound ($1.57) winning bet would yield an 80 pence return plus the original stake. O’Neill is second favorite at 7/2, followed by O’Donnell at 4/1 and Turner at 6/1. Green’s odds are 7/1 and Varley stands at 16/1.
Conaghan expects the choice to be James Sassoon, an adviser to Osborne and a former investment banker. Myners suggested John Rose, the former Rolls-Royce Group Plc CEO and now deputy chairman of the Rothschild Group.
The risk of scandal in banking can be problematic when recruiting from finance, said Steven Bell, a former U.K. Treasury official who is now chief economist at hedge fund GLC Ltd. in London. A poll conducted by ComRes Ltd. this week showed just 10 percent of the population trust bankers following the financial crisis that began in 2007 and helped push the U.K. into its first double-dip recession since the 1970s.
“There’s always concern in these appointments to make sure the person is squeaky clean,” Bell said.
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