Barclays Plc (BARC) ex-Chief Executive Officer Robert Diamond was criticized for giving “unforthcoming and highly selective” evidence by a U.K. parliamentary report that faulted the bank for letting traders rig interest rates.
The “candor and frankness” of Diamond’s testimony to lawmakers on July 4 “fell well short of the standard that Parliament expects,” the House of Commons Treasury Committee said in a 122-page report today following its inquiry into the bank’s attempts to manipulate the London interbank offered rate.
“The Barclays board has presided over a deeply flawed culture,” the panel of British lawmakers said. “Senior management should have known earlier and acted earlier.”
Barclays was fined a record 290 million pounds ($455 million) in June for attempting to manipulate Libor. The fine, coupled with criticism from regulators, triggered the resignations of Diamond, Chairman Marcus Agius and Chief Operating Officer Jerry del Missier. At least a dozen firms worldwide are still being probed over alleged rate-rigging.
Barclays’s compliance department was told three times about concerns over Libor, yet these warnings weren’t passed on to senior management, the committee said. Compliance at the bank was “persistently ineffective,” it said. The actions of Barclays and other traders were “disgraceful” and harmed the reputation of the bank and the industry, the panel said.
Barclays shares fell 16 percent the day after the bank was fined and have since pared their loss to 1.6 percent. The London-based lender is the third-worst performer in the six- member FTSE 350 Banks Index (F3BANK) after gaining 9.5 percent this year.
U.K. and U.S. regulators found Barclays “systematically” attempted to rig the London and euro interbank offered rates for profit. Libor, determined by 18 banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies, is the benchmark for more than $360 trillion of securities worldwide.
Treasury Committee Chairman Andrew Tyrie is leading a separate panel of lawmakers that is developing further proposals to regulate the industry by December. Martin Wheatley, the managing director of the Financial Services Authority, is also conducting a review of how Libor is regulated.
Diamond, 61, told the lawmakers on July 4 that 14 traders out of 2,000 were responsible for Libor manipulation.
Their actions were only possible “if the management of the bank turned a blind eye to the culture of the trading floor,” the panel said. “The incentives and control systems of Barclays were so defective that they incentivized traders to benefit their own book irrespective of the impact on shareholders and the bank’s overall performance.”
Diamond said in a statement he was “disappointed” by the report and “strongly” disagrees with several of its conclusions.
“I answered every question that was put to me truthfully, candidly and based on information available to me,” Diamond said in the statement. “I categorically refute any suggestion to the contrary.”
Barclays will carefully consider the report, spokesman James Cooke said in statement sent by e-mail today.
“While we don’t expect to agree with every finding in it, we recognize that change is required, not lest to restore stakeholder trust,” Barclays said in the statement.
Diamond told lawmakers other banks were lowballing their Libor submissions to conceal their difficulties in obtaining funding, and that Barclays had repeatedly warned regulators.
“It stretches credibility to suggest that Barclays was trying to alert regulators to inconsistencies in the Libor submissions of other banks yet had no idea about the repeated lowballing of its own submission,” the lawmakers said. “We have found no evidence that the board of Barclays sought to conduct an investigation.”
Barclays also released notes the bank said Diamond wrote following an Oct. 29, 2008, phone conversation he had with Paul Tucker, now deputy governor of the Bank of England. Tucker called Diamond to inform the banker that “senior” Whitehall officials had asked why Barclays’s Libor submissions were always at the “top end,” according to the note.
Diamond, Del Missier and Agius were all questioned on whether Barclays submitted artificially reduced rates on the instructions of the central bank. Diamond said Tucker didn’t direct him in the conversation to lower the firm’s submissions in 2008 and he gave no instruction to his employees. Del Missier said Diamond had told him to deliver lower rates and blamed compliance managers for failing to act.
“If Tucker, Diamond and del Missier are to be believed, an extraordinary, but conceivably plausible, series of misunderstandings and miscommunications occurred,” the lawmakers said. “The evidence that they separately gave describes a combination of circumstances which would excuse all the participants from the charge of deliberate wrongdoing.”
The lawmakers said in the report that the Tucker-Diamond discussion may have been a “smokescreen put up to distract our attention.”
The lawmakers rejected Diamond’s account of a board meeting on Feb. 9 in which Andrew Bailey, the FSA’s then head of banking supervision, warned Barclays about its behavior.
“There was a perception in the market and amongst some regulators that Barclays was not all that it should be,” the Barclays board minutes noted, according to the report. “At lower levels in the organization there was a desire to engineer solutions rather than find real answers to regulatory issues.”
Diamond told lawmakers that Bailey had said he was “specifically happy” with the “tone at the top” at the bank.
“The fact that the Barclays board discussed the need to get the ‘tone from the top’ right, and how important this was to Barclays, after Bailey left the board meeting, suggests that the Barclays board did appreciate his message,” the lawmakers said. “This appreciation was lacking in Diamond’s evidence. We do not accept Diamond’s evidence on this point.”
The parliamentarians also criticized the FSA for failures in its oversight of Barclays as well as its handling of Diamond’s resignation.
“The committee is concerned that the FSA was two years behind the U.S. regulatory authorities in initiating its formal Libor investigations,” the lawmakers said. “This delay has contributed to the perceived weakness of London in regulating financial markets.”
“The FSA has already put in place a number of reforms in recent years including a tougher fines policy for enforcement cases and a completely new model of bank supervision,” Liam Parker, an FSA spokesman, said in an e-mailed statement. “We will study the report’s findings and Martin Wheatley will consider it as part of his Libor review.”
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