Libor Probe by U.K. Lawmakers Is Backed by Labour After Dispute

Chancellor of the Exchequer George Osborne
Chancellor of the Exchequer George Osborne. Photographer: Chris Ratcliffe/Bloomberg

U.K. Prime Minister David Cameron’s plan for a parliamentary inquiry following Barclays Plc’s rigging of interest rates gained the belated backing of the Labour opposition, which had sought a broader judge-led inquiry.

The House of Commons in London voted yesterday by 330 to 226 to establish a cross-party probe to be led by Andrew Tyrie, a member of Cameron’s Conservative Party who heads the chamber’s Treasury Committee. The government defeated a Labour motion seeking a judicial investigation by 320 votes to 239. Ed Balls, who speaks for Labour on Treasury affairs, said his party will take part in the parliamentary inquiry even though it opposed the premier’s plan originally.

Barclays, the U.K.’s second-largest bank by assets, was fined a record 290 million pounds ($453 million) on June 25 for manipulation of the London interbank offered rate, a global benchmark, for profit. Chairman Marcus Agius, Chief Executive Officer Robert Diamond and Chief Operating Officer Jerry Del Missier subsequently resigned.

The Labour announcement restored a measure of consensus after a Commons debate that saw two deputy speakers calling on lawmakers to calm down and to allow Balls and Chancellor of the Exchequer George Osborne to argue their case. Osborne told the chamber he welcomed the Labour move and urged “a result all sides can agree on” so that “we can make the changes in legislation to make sure this never happens again.”

‘Grave Error’

Even as he announced to the Commons after the votes that Labour will participate in the probe, Balls said putting the review in the hands of politicians was “a very grave error of judgment” on the part of Osborne and Cameron and will lead to questions over impartiality by the public.

Tempers frayed at the start of the debate as Balls demanded Osborne withdraw allegations linking him to the rigging of Libor. Balls said accusations made by the chancellor in this week’s Spectator magazine that he leaned on the Bank of England to pressure Barclays to lower its Libor submissions in 2008 were “baseless.”

Osborne said in the Spectator that people close to former Prime Minister Gordon Brown, for whom Balls worked as an aide before becoming a minister in the previous administration, “were clearly involved” in the Libor affair and that “we just haven’t heard the full facts.”

“My opposite number, who was the City minister for part of this period and Gordon Brown’s right-hand man for all of it, so he has questions to answer,” Osborne told the magazine. “That’s Ed Balls by the way.”

‘No Evidence’

Osborne “cannot defend here what he whispers to the Spectator,” Balls said. “He has no evidence and he knows it.” The Labour lawmaker said Osborne “should either present the evidence or withdraw the allegation against me right now.”

Balls argued during the debate that only a judicial probe would “persuade the public” it was not partisan.

“We need the inquiry to be thorough and genuinely cathartic or else we will be here again,” he said.

Tyrie had warned he would not head the probe without Labour support.

“Confidence in banking is very low,” Tyrie told Parliament, defending the government case for a rapid inquiry. “This is bad for Britain.”

Tyrie, a former adviser to John Major and Nigel Lawson when they were chancellors, and a lawmaker since 1997, described the Libor scandal as “the worst case of City malpractice I can recall.”

Ratings Threat

Barclays credit ratings are under threat. Moody’s Investors Service cut the outlook on the London-based lender’s standalone bank financial strength to negative from stable, according to a statement yesterday. Standard & Poor’s followed, lowering the long-term rating outlook to negative. The ratings companies cited political pressure on the lender’s investment bank and the departure of Diamond.

Barclays shares rose 1.3 percent to 168.20 pence in London trading yesterday. They plunged 16 percent on June 28, the day after the bank’s settlement with regulators was announced. The stock is down 4.5 percent this year, making Barclays the worst performer in the six-member FTSE 350 banks index.

Bank of England Deputy Governor Paul Tucker will appear before the Commons Treasury Committee on July 9 after lawmakers agreed to hear his version of his 2008 phone call with Diamond on Libor rates. That’s the conversation in which Osborne alleged Tucker was passing the views of Balls.

The policy maker was drawn into the furor after Barclays published three days ago Diamond’s notes on the call about Barclays’ Libor submissions. The memo said Tucker, at the time markets director at the central bank, told Diamond that “senior” government officials asked why the submissions were always at the “top end.”

The panel also rescheduled a hearing with Agius, who is staying on as Barclays executive chairman while a successor to Diamond is found, for July 10, following testimony two days ago from the former CEO.

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