Barclays Plc’s top three executives resigned amid a deepening dispute about whether the Bank of England pushed the lender to submit artificially low Libor rates during the financial crisis.
Robert Diamond stepped down today as chief executive officer of Britain’s second-biggest bank and Jerry Del Missier quit as chief operating officer, London-based Barclays said in a statement. Chairman Marcus Agius, 65, will quit once he has found a replacement for Diamond, who has worked at the bank for the past 16 years and oversaw its investment banking expansion.
The three are leaving after regulators fined the bank a record 290 million pounds ($455 million) for attempting to rig the London interbank offered rate for profit. With Diamond due to appear before lawmakers tomorrow to answer their questions, Barclays released a note of a 2008 call purporting to show that Paul Tucker, the central bank’s then markets director, hinted the firm could cut its Libor rates.
“Tucker stated that the levels of calls he was receiving from Whitehall were ‘senior’ and 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 said in an Oct. 30, 2008 e-mail to then CEO John Varley and Del Missier.
Diamond, 60, didn’t believe he had received any instruction or that he gave any order to Del Missier to lower the bank’s submissions, Barclays said in evidence to lawmakers today. Del Missier, 50, concluded that the Bank of England had instructed the firm not to keep Libor so high and mistakenly instructed employees to lower their submissions, Barclays said.
The disclosure marks a worsening in relations between Barclays, employer of almost 150,000 people worldwide, and its regulators. Bank of England Governor Mervyn King and Financial Services Authority Chairman Adair Turner had pushed to oust Diamond, the British Broadcasting Corp. reported earlier today. Tucker, now deputy governor of the Bank of England, is a front-runner to succeed King in June next year.
“This is all just a bit of a red herring,” said Vivek Raja, a U.K. banking analyst at Oriel Securities Ltd. in London. “What was happening during the credit crisis isn’t really all that important. Bringing its rate down to be part of the Libor calculation can’t be seen to be as much of a manipulation as what the derivatives traders were doing from 2005.”
U.K. and U.S. regulators found Barclays “systematically” attempted to rig the London and euro interbank offered rates for profit from 2005. Libor, which is determined by about 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, including mortgages, student loans and swaps.
A Bank of England spokesman declined to comment on the document. Barclays closed down 0.8 percent at 167.05 pence in London trading for a market value of about 20.4 billion pounds. The stock is the worst-performing of the six-member FTSE 350 Banks index so far this year. It fell 16 percent on June 28 when the fine was announced.
Diamond ran the London-based bank’s securities unit when the Libor manipulation occurred. He lost the contest for the CEO post to Varley in 2003 and became president of the bank in 2005. He stayed, and by 2007, his Barclays Capital unit accounted for 31 percent of pretax profit. Varley stepped down in 2010, clearing the way for Diamond to replace him.
The Massachusetts-born Boston Red Sox fan began his career as a lecturer at the University of Connecticut in 1976 and has also held roles at Credit Suisse First Boston in Tokyo and New York and Morgan Stanley.
In 2007, Diamond and Varley lost the takeover battle for ABN Amro Holding NV to a group led by Royal Bank of Scotland Group Plc. The takeover of the Dutch lender eventually forced RBS to seek a government bailout.
A year later, Diamond struck a deal to buy the North American investment-banking business of bankrupt Lehman Brothers Holdings Inc. for $1.75 billion. He then embarked on a hiring spree to expand the investment banking unit, adding stock underwriting and merger advisory businesses and bankers in Europe and Asia to match its U.S. standing.
Diamond had yesterday defied pressure to quit, pledging to implement the findings of a review into how the bank sets Libor. Diamond had already come under fire from politicians for his background in investment banking and his compensation.
“Diamond is an out-and-out American investment banker,” said Chris Roebuck, a visiting professor at London’s Cass Business School. “He says what he thinks and he drives hard to maximize the performance of his bank. That combination isn’t necessarily what fits with the British approach to things. As a result, he has a tendency to upset people.”
Diamond was branded the “unacceptable face of banking” by then-Business Secretary Peter Mandelson in 2010 over his compensation. His 12 million-pound remuneration, including a 5.75 million-pound payment toward his personal tax bill last year, made him Britain’s top-paid bank CEO. In January 2011 he told Parliamentarians that the time for “remorse and apology” for banks needed to be over, prompting political outcry.
Diamond is entitled to a payoff of 2 million pounds to 21 million pounds depending whether the board determines him to have left in good standing, according to Manifest Information Services Ltd., a proxy voting firm that advises clients managing 3 trillion pounds of assets.
He has received at least 120 million pounds in salary, bonuses and share awards since joining Barclays’s main board in 2005, Manifest said. That excludes the 26.8 million pounds he made on selling shares in Barclays Global Investors in 2009. Agius told reporters on a call today the bank hasn’t yet set Diamond’s severance terms.
The former CEO is due to be questioned by British lawmakers on the Treasury Select Committee tomorrow, days after the government announced a parliamentary inquiry into the U.K. banking industry. Agius postponed his testimony, scheduled for the following day, to next week.
“The external pressure placed on Barclays has reached a level that risks damaging the franchise,” Diamond said in the statement. “I cannot let that happen. I am deeply disappointed that the impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth.”
Barclays is now under pressure to find a replacement CEO, Chairman and COO. Del Missier, 50, jointly ran corporate and investment banking with Rich Ricci, until he was promoted to the COO position last month.
“It’s going to be very difficult to find a candidate that ticks the boxes,” said Stephane Rambosson, managing partner at executive search firm Veni Partners in London. “There are very few internal candidates and if you look externally, what is Barclays offering? A huge amount of responsibility and scrutiny over pay at a bank with no clear contingency plan.”
Bill Winters, 50, the former co-chief executive officer of JPMorgan Chase & Co.’s investment bank and a member of the government-sponsored Independent Commission on Banking would be ideal for the CEO position, said Cormac Leech, an analyst at Liberum Capital Ltd. in London. Winters, who has started an asset management firm, declined to comment.
RBS CEO Stephen Hester “is highly regarded and if offered the Barclays CEO role, may well take it since it would offer a greater chance of bonus potential than state-run RBS,” analysts including Andrew Lim at Espirito Santo Investment Bank wrote in a note to investors today.
Internally, Antony Jenkins, the head of consumer banking, is the favorite to replace Diamond, bookmaker Paddy Power Plc said in an e-mailed statement. Investors may be prepared to overlook his lack of investment banking expertise, Lim said.
“Barclays is in big trouble,” said Jason Kennedy, CEO of Kennedy Group, a London-based recruitment firm. “The captain is gone, the first officer is gone. The chief engineer has gone and therefore the oil tanker is drifting with no port of call.”