Bank of England Deputy Governor Paul Tucker will testify today on the Libor scandal that cost Barclays Plc (BARC)’s top three managers their jobs and cast doubt on his prospects of succeeding his boss, Mervyn King.
Tucker, 54, will relate to lawmakers at a Parliament hearing his side of a 2008 phone call with former Barclays Chief Executive Officer Robert Diamond that has drawn the Bank of England into the furor on interest-rate manipulation. A memo Diamond wrote suggested Tucker might have hinted that Barclays could lowball its Libor submissions.
Barclays was fined a record 290 million pounds ($449 million) last month for manipulation of the London interbank offered rate. The revelation about Tucker in Diamond’s memo jeopardized his position as the front-runner to replace King, earned as the deputy governor entered his fourth decade working at the central bank.
“It’s the battle of the titans where the powerful banker is pointing the finger at the guy who’s heading to be the next governor,” said Marcus Miller, a professor at the University of Warwick who was doing research at the central bank at the time of the October 2008 telephone call. “Tucker may get asked about whether he counseled lowballing, and whether Diamond’s version of events is believable. I think he can save himself.”
Parliament’s Treasury Committee will begin questioning Tucker at 4:30 p.m. in London. The central bank said last week that he wanted to testify as soon as possible to “clarify the position with regard to the events involving the Bank of England, including the phone conversation with Bob Diamond on Oct. 29, 2008.”
Documents released today show correspondence on Barclays’s Libor rates between Tucker and Jeremy Heywood, former principal private secretary to then-Prime Minister Gordon Brown. Heywood said in an Oct. 22 e-mail that the bank’s high submissions sparked “a lot of speculation in the market over what they are up to.”
The files also show that Tucker e-mailed Diamond on Oct. 25 about a recent Barclays bond issue, saying he was “struck that your govt gnteed bond was issued at around 140 over gilts. That’s a lot.” Diamond replied with details of the sale that say it shows “access to wholesale funding is confirmed.”
Tucker may also be questioned about his knowledge of any Libor manipulation before 2008. Minutes of a meeting of bankers and regulators led by Tucker in November 2007 show the issue was raised during discussions.
“Several group members thought that Libor fixings had been lower than actual traded interbank rates through the period of stress,” the minutes said. “Libor indices needed to be of the highest quality given their important role.”
Diamond, Barclays’s investment-banking chief in 2008, relayed his version of the Oct. 29 call with Tucker in an e-mail to John Varley, his predecessor as CEO. Regulators obtained the note as they probed Barclays’s Libor reports, which cumulated in the bank receiving the record fine. Diamond, Chairman Marcus Agius and Chief Operating Officer Jerry Del Missier have since resigned.
According to Diamond’s memo, Tucker had received calls from “senior figures within Whitehall” on Barclays’s Libor pricing. Tucker stated “that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”
Diamond told lawmakers last week that he didn’t interpret the conversation as a request to change Libor submissions.
Diamond said he asked Tucker to tell government officials that not all banks were providing Libor quotes that represented the true level at which they could borrow money. He said he was also concerned Barclays could have been nationalized if it showed signs of difficulties in obtaining funding.
Andrea Leadsom, a Conservative lawmaker who once worked for Barclays and who will question Tucker today, said the central bank “is not corruptible” and that she expects it played no part in manipulation of Libor. Tucker’s request also suggests his innocence, she said.
“I would be astonished if anybody at the BOE played any part in suggesting to Barclays what to do with Libor,” she said in an interview. “The fact that he was so desperate to come in means he wants to make it very clear he had nothing to do with it. If I had a hat, I’d be prepared to eat it.”
Libor is calculated by a survey of banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies. Because submissions aren’t based on real trades, the potential exists for the benchmark to be manipulated. The U.K. Serious Fraud Office said on July 6 that it’s opened a criminal probe.
Tucker’s testimony may also shed light on the efforts by officials to fight the 2008 financial crisis. The call with Diamond took place at the end of a month when the British government took controlling stakes in Royal Bank of Scotland Group Plc and HBOS Plc in the wake of the Lehman Brothers Holdings Inc. collapse.
Miller of Warwick University did research at the Bank of England from October to December 2008 and said that from his office in Threadneedle Street in London, he found a “strangely” tranquil atmosphere in the bank amid the crisis.
“Though the governor and deputy governor were rushing to Downing Street to arrange the bailout, the day-to-day activity was very calm compared to outside, where all these high-paid people were running around like chickens,” he said. “People who were being paid a fraction of those salaries were working very hard to save those people from themselves. Thank goodness that there’s some areas of integrity left.”
Tim Congdon, a former U.K. Treasury adviser, said that any revelations on Libor that emerge today should be seen in the context of the financial panic officials were trying to stem.
“I quite understand why in these circumstances people would have turned a blind eye, and not have been disapproving if a bank had been a bit economical with the truth,” he said. “If it does emerge that he didn’t disapprove, to me that’s not terribly important. There was a public policy interest in disguising the truth.”
Tucker is no longer the favorite to replace King, according to odds offered by bookmaker Paddy Power Plc. (PAP) His odds have worsened to 9/4 from 6/4, while Gus O’Donnell moved into 7/4 from 2/1. O’Donnell was a 14/1 shot at the start of the year.
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