Paul Tucker, whose three-decade career at the Bank of England marked him out as the leading candidate to become the next governor, failed to secure the top post after the Libor scandal undermined his bid.
Tucker was last week described as “home and dry” by bookmaker William Hill Plc (WMH), which made him the favorite for the job at odds of 1-4, meaning a 4-pound ($6.40) wager would return a 1-pound profit. Instead, Chancellor of the Exchequer George Osborne named Bank of Canada Governor Mark Carney yesterday as Mervyn King’s replacement.
Tucker’s chances were tainted after he was forced to deny accusations from lawmakers that he pressed Barclays Plc (BARC) to lower Libor submissions, and defend himself against criticism he ignored warnings from other regulators on flaws in the rate. Tucker, the BOE deputy governor for financial stability, said he “warmly” congratulated Carney. Osborne said he hopes Tucker will continue at the central bank.
“He’s obviously going to be gutted,” said Amit Kara, an economist at UBS AG (UBSN) in London and a former Bank of England official. “Perhaps the government fears that other gremlins like the Libor scandal may emerge. There’s no question he’s extremely competent, and it would be a shame for the bank to lose him if he were to resign.”
Barclays Plc (BARC) lost its three most senior executives and incurred a record 290 million-pound fine in June for manipulating the London interbank offered rate, the benchmark for more than $300 trillion of securities. Now, more than a dozen banks worldwide, including Royal Bank of Scotland Group Plc, Britain’s biggest publicly owned bank, are being probed over allegations they submitted artificially low Libor rates to appear healthier than they were or that traders at the firms sought to fix the rate to profit from derivatives bets.
Tucker, 54, said in July during testimony to lawmakers that the Libor investigation had uncovered a “cesspit” in the City of London, Europe’s largest financial center. London’s regulatory regime has also been damaged this year by JPMorgan Chase & Co.’s (JPM) $6.2 billion trading loss as well as Kweku Adoboli’s $2.3 billion of unauthorized trading at UBS AG. (UBSN)
Tucker joined the bank in 1980 after studying mathematics at Cambridge University, and worked his way up to become markets director in 2002.
In that division, he initiated practices such as monthly meetings where staff reported on developments in global capital markets, and developed relationships with chief risk officers at financial institutions to improve the BOE’s access to market information, said Simon Wells, who worked for Tucker and became U.K. economist at HSBC Holdings Plc at the end of last year.
“Before his arrival, the bank’s market intelligence function was something of an oxymoron, and he turned it into something that really surveyed modern capital markets,” Wells said. In the race for governor, “what set him aside from some of the other candidates was a keen interest in and understanding of financial markets.”
His work in the markets department drew him into the Libor scandal. Libor is calculated by a daily poll carried out on behalf of the British Bankers’ Association that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London. Because the rate is based on estimates rather than actual traders, it’s open to manipulation.
Former Barclays Chief Executive Officer Robert Diamond told parliament’s Treasury Committee in July that he had received a call from Tucker in October 2008, when he was head of the investment bank, asking why the lender’s Libor submissions were so high. Jerry Del Missier, Barclays’s then-chief operating officer, told lawmakers he interpreted Tucker’s intervention as an instruction to submit lower rates.
Diamond, who stepped down as CEO this year, told lawmakers 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.”
Tucker told lawmakers that he didn’t lean on Barclays to lowball its submissions, saying he had spoken to Diamond as there was concern Barclays was “next in line” after RBS and Lloyds Banking Group Plc had accepted bailouts in 2008 in the wake of the collapse of Lehman Brothers Holdings Inc.
In their August report on the affair, lawmakers said it was “by no means clear” that Tucker had instructed Barclays to lower its rates. They added that the note may have been a “smokescreen” by Barclays to distract lawmakers.
Tucker was among senior BOE officials criticized for failing to act on signs that the rate was vulnerable. Asked about a November 2007 meeting of bankers and regulators he led, where the issue of false Libor rates was raised, Tucker said it “didn’t set alarm bells ringing.”
“This doesn’t look good, Mr. Tucker,” Treasury Committee Chairman Andrew Tyrie said. “It doesn’t look good that we have in the minutes on the Nov. 15, 2007 what appears to any reasonable person to be a clear indication of lowballing, about which nothing was done.”
King said yesterday his deputy has “much more to contribute in the years ahead.” Tucker, whose term as deputy governor expires in Feb. 2014, may not be short of job opportunities were he to leave “The Old Lady of Threadneedle Street,” as the central bank is known.
“He’s worked like a Trojan for the Old Lady as man and boy,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc (RBS) and a former central bank economist. “I wouldn’t worry about him though -- if he does choose to leave after his term is done, they’ll be lining up round the block for him.”