Report also criticises Bank of England and regulator for being slow to notice events leading up to Barclays’ £290m fine
MPs have attacked the former Barclays boss Bob Diamond for being “highly selective” in the evidence he gave to their emergency hearings on rigging key Libor interest rates, in the first comprehensive report on the way bankers and regulators handled the scandal.
The Treasury select committee also criticised the Bank of England and the chief City regulator for being slow to notice the events that led to the £290m fine for Barclays in June. “It doesn’t look good,” said Andrew Tyrie, the Conservative MP who chairs the committee, pointing out that neither spotted the problems with Libor.
Speaking about Diamond’s appearance before the committee last month, he said: “Select committees are entitled to expect candour and frankness from witnesses before them. Mr Diamond’s evidence, at times highly selective, fell well short of the standard that parliament expects, particularly from such an experienced and senior witness.”
The “poor state” of the culture at Barclays was also criticised, as was its board.
In response, Diamond made a strong defence of his 16-year tenure at the bank, arguing that Barclays had not needed a taxpayer bailout. He insisted he had answered “truthfully, candidly and based on information available to me” and that the image being created of Barclays “could not be further from the truth”.
Tyrie said the episode had damaged the City. “The sustained rigging of a crucial benchmark rate has done great damage to the UK’s reputation. Public trust in banks is at an all-time low. Urgent improvements, both to the way banks are run and the way they are regulated, [are] needed if public and market confidence is to be restored,” he said.
The MPs took evidence from Diamond barely 48 hours after he resigned as chief executive of Barclays, and were frustrated by his refusal to acknowledge that the City regulator, the Financial Services Authority, had expressed concerns about the culture of the bank to the Barclays board in the runup to the Libor fine.
But the committee’s 122-page report entitled “fixing Libor: some preliminary findings” also shows that the MPs believe the FSA and the Bank of England took the steps that led to Diamond’s departure only after digesting public and media reaction to the Libor fine. “Regulators should not decide the composition of boards in response to headlines. Many will agree with the removal of Mr Diamond. However, many will wonder why the regulators did not intervene earlier, for example, at the time of the publication of the [fine],” Tyrie said.
The committee describes the Libor fine – the first of many expected to be imposed on big financial firms – as a “reputational disaster for Barclays”. It forced the chairman, Marcus Agius, to quit, only to be reinstated 24 hours later after Sir Mervyn King, governor of the Bank of England, told him that regulators had lost confidence in Diamond.
Correspondence published for the first time today between Agius and Tyrie appears to support Diamond’s evidence to the committee, as Agius admits that Diamond had not seen some of the documents in advance when he was asked about them last month.
The committee said the Barclays fine should be seen in the context that other banks were being investigated for rigging the rate and that investigations should be accelerated, particularly at banks owned by taxpayers – a possible reference to Royal Bank of Scotland.
Diamond’s appearance before MPs was followed by those of Agius and Jerry del Missier, the top Barclays banker who quit after issuing an instruction to cut the bank’s Libor submissions in October 2008, as well as those of King and his deputy, Paul Tucker.
The hearings also put candidates to replace King as Bank of England governor next year on the back foot, as Tucker and Lord Turner, chairman of the FSA, were forced to defend their actions during the period.
The MPs said one question the inquiry became focused on may have been a “smokescreen” to distract from more serious issues underlying the scandal. At one point there was confusion about whether a Bank of England official had instructed Barclays to cut its Libor submissions in an attempt to avoid any impression that the bank was in difficulty during the financial crisis. Del Missier admitted he had instructed Barclays staff to reduce submissions after a conversation with Diamond, who was relaying a conversation with Tucker at the Bank. At the time, October 2008, a higher submission to Libor would have given the impression Barclays was finding it more difficult to borrow from other banks.
Del Missier, Diamond and Tucker were cleared of “deliberate wrongdoing”. “If they are all to be believed, an extraordinary, but conceivably plausible, series of miscommunications occurred,” Tyrie said.
The Bank of England is accused of “naivety” in not realising there was “dishonesty” taking place in setting Libor. The FSA’s shortcomings are “more serious”, the MPs said, revealing the regulator was conducting an internal review into what it should have done better.
The MPs said the so-called Tucker-Diamond dialogue “may have been a smokescreen put up to distract our attention… from the most serious issues underlying this scandal”. This is a reference to the two stages of the Libor rigging – the period 2005 to 2008 when Barclays treaders were manipulating rates to make potential profits and the period 2007 to 1009 when Barclays was lowing its submissions through “low balling” to avoid negative publicity.
Non-executive director who clashed with the chairman over Bob Diamond’s bonus suddenly quits
Barclays was mired in fresh controversy on Wednesday night after handing almost £9m to a top banker who left following the Libor scandal and after one of its highest profile non-executive directors suddenly quit, taking the toll at the top to four.
Jerry del Missier, who resigned after telling subordinates to reduce the bank’s Libor submission during the October 2008 banking crisis, was reported to have been handed £8.75m cash as part of his leaving package.
Alison Carnwath, who also chairs the property company Land Securities, cited “personal reasons” and time pressure for her immediate resignation from the board of Barclays, which is still reeling from the exit of chief executive Bob Diamond.
The bank’s chairman Marcus Agius, who is also in the process of leaving but is due to present the bank’s half-year profits on Friday, will now face questions about the pay off for the Canadian-born banker Del Missier, who had just been promoted to chief operating officer.
Del Missier was a close lieutenant of Diamond’s and appeared before the Treasury select committee to explain why he had instructed the Libor submission to be lowered.
Del Missier said Diamond had told him to cut the rate after a conversation with Paul Tucker, the Bank of England deputy governor, something both Diamond and Tucker insist was not the case.
Del Missier was one of Barclays’ top paid bankers. Although he did not sit on the board, where his pay would need to be published, in 2010 it emerged he had been handed £40m when deals paid out.
When reports of a disagreement over Del Missier’s leaving bonus emerged, the bank had insisted it was keen to foster debate in the boardroom.
Shadow Treasury minister Chris Leslie called on del Missier to follow Diamond and waive the bulk of his payoff. “Having resigned from Barclays over the Libor fixing scandal, people will find the scale of this award completely inappropriate. Bob Diamond rightly waived most of his pay off and Mr del Missier ought to do the same,” Leslie said.
Barclays declined to comment.
There was speculation of boardroom tensions even before the Libor scandal broke, between Carnwath and Agius during negotiations over Diamond’s bonus in the spring.
Former investment banker Carnwath wanted Diamond to waive a £2.7m bonus – part of a £17m pay deal – to show leadership but she eventually agreed to the payout. At the bank’s annual meeting in April the payout sparked a shareholder revolt over the bank’s pay policies.
Carnwath herself also faced a shareholder rebellion, with 22.5% of investors failing tosupport her because of her status as chairman of the remuneration committee. However, when it later emerged that she had tried to stop the bonus, some investors made it clear they were keen for her to stay. One said: “She seemed to have been the one board member asking the right questions.”
However, others pointed out that she has eight other jobs or advisory roles in addition to Barclays. They include a non-executive directorship at the troubled hedge fund group Man Group, where she faced another shareholder revolt about her continued membership of the board. She has been on the board of Man for 11 years – which contravenes governance guidelines. Some 33% of investors failed to support her election to the board of Man. At Land Securities her election to the board was not so controversial.
Carnwath has not yet commented on the recent events at Barclays, but has spoken to accountancy magazine economiafor a cover interview which is to be published on Friday. In the interview she explains that the Barclays remuneration committee faced “a lot of pressures” when dealing with the top echelons of the bank. She adds: “It’s not easy, and we don’t always get it right.”
“I sometimes wake up worried – or don’t go to sleep at all because I’m anxious,” she said. “That’s not so good. Last night I lay awake fretting about something. I then have to stand up and somehow all the worry drains out of my feet, or I write things down.”
In a statement announcing her departure, Carnwath blamed the pressures of too many jobs.
“With regret I have concluded that I am no longer able to devote sufficient time to my role as a director of Barclays given my other commitments. I would like to thank my colleagues on the board for their support and I wish Barclays continuing success in the future.”
Agius, who will leave once his successor is found, thanked her for her contribution since joining the board in August 2010.
But her departure comes at a difficult period for the bank which is due to publish first-half profits of around £3.7bn on Friday.
The board has now handed a central role to former top accountant Sir Michael Rake, who becomes deputy chairman – although he has ruled himself out of the chairman’s job despite expressing interest when Agius first quit.
The ongoing turmoil at Barclays came as the US Treasury secretary Tim Geithner pinned the blame on the UK for the Libor problem. At the time he was head of the Federal Reserve Bank of New York and made proposals to the UK about how to solve problems with the rate, which is overseen by the lobby group the British Bankers’ Association.
“We felt, and I still believe this, that it was really going to be on them,” he said.
Jerry del Missier told MPs he spoke directly to former chief executive before instructing staff to cut bank’s Libor submission
Jerry del Missier, a former top Barclays banker, revealed that he spoke directly to his former boss Bob Diamond before instructing staff to cut the bank’s submission to Libor.
He also revealed that the bank’s compliance department was informed that traders were going to attempt to manipulate the crucial interest rate.
In evidence to MPs following his resignation as chief operating officer of Barclays, Del Missier was adamant that Diamond instructed him to cut the Libor rate following a conversation with Paul Tucker, deputy governor of the Bank of England.
Del Missier said he passed on the instruction he received to reduce Libor submissions to the “head of the money market desk” – later named as Mark Dearlove. “It did not seem an inappropriate action given this was coming from the Bank of England,” said Del Missier. Asked if he was acting on an instruction from Diamond, Del Missier said: “Yes it was”.
He said that the money market desk had told compliance, then headed by Stephen Morse, about the decision to reduce the Libor submission.
The Financial Services Authority investigated Del Missier and did not bring a case against him when it fined the bank a fortnight ago for attempting to manipulate Libor. He told MPs that in September 2011 the FSA told him there would be no action against him. “I was cleared,” said Del Missier who was promoted to chief operating officer only last month after holding senior roles at the investment banking arm Barclays Capital.
Del Missier – who quit shortly after Diamond – said that Diamond spoke to him the day before he wrote a crucial memo – sent to the then-chief executive John Varley and copied to Del Missier – in which he outlined a conversation with Tucker which has caused confusion about whether the Bank of England was sanctioning Barclays to reduce its Libor submission.
Libor is set by a panel of banks – and a high submission might indicate a bank was in financial difficulty.
Diamond has insisted he did not instruct Del Missier to cut Libor and that he did not believe Tucker was telling him to cut the bank’s Libor submission. Tucker said the same when he appeared before MPs last week.
Andrew Tyrie, the MP who chairs the Treasury select committee, noted that the “lowballing” of Libor carried on until May 2009 – some seven months after Del Missier issued the instruction.
He was asked how he could have misinterpreted what Diamond said to him and replied: “I can only tell you what I clearly recall from the conversation.”
“What was communicated to me by Mr Diamond was that there was political pressure on the bank regarding Barclays’ health, and that we should get our Libor rates down,” said Del Missier, who said he was in “regular communication but not always daily” with Diamond.
Jerry del Missier, who resigned as COO, faces select committee as US considers launching own criminal inquiry into scandal
MPs will demand to know on Monday why former Barclays chief operating officer Jerry del Missier, who resigned in the wake of the Libor rate-fixing scandal, issued instructions to reduce the bank’s interest rate submissions.
As US authorities consider launching a criminal inquiry into the bank’s involvement in manipulating interest rate levels, a series of hearings will take place this week relating to the scandal.
But Barclays has stepped up its defence by telling its staff other banks could be even more culpable. In an internal memo sent on Friday, co-signed by chairman Marcus Aguis, Barclays apologised for the impact of the scandal on staff, but added: “As other banks settle with authorities, and their details become public, and various governments’ inquiries shed more light, our situation will eventually be put in perspective.”
About 15 other lenders, including Lloyds Banking Group and Royal Bank of Scotland, are currently being investigated.
As well as questioning Del Missier, a close ally of former Barclays boss Bob Diamond, MPs will also grill the UK’s top City watchdogs, who will be asked to explain why they failed to take heed of warnings from US regulators of possible malpractice relating to inter-bank lending rates.
Sir Mervyn King, the governor of the Bank of England, is expected to face tough questioning after his deputy Paul Tucker explained to MPs on the powerful all-party Treasury select committee that the central bank was unaware of interest-rate-fixing allegations.
“This was a cesspit,” he said of the Libor manipulation. “We were not aware of it, other than what is starting to come out in these investigations. We didn’t have any knowledge, I didn’t have any knowledge.”
Correspondence published after Tucker’s testimony shows the US authorities were concerned at potential abuses of the Libor system and asked the UK regulators to investigate. It has also emerged that Barclays alerted US authorities about possible irregularities in 2007.
The US justice department is understood to be building a criminal case against Barclays, and several other financial institutions and their employees related to the manipulation of interest rates.
US government officials close to the case expect to file charges against at least one bank this year, the New York Times has reported. Investigators in Washington and London settled a regulatory investigation last month that laid blame for the manipulation on a small group of traders and their managers. Diamond and Del Missier escaped sanction.
Adair Turner, the chairman of the Financial Services Authority, the UK’s main banking regulator, will be asked by MPs to justify his decision to avoid sanctions against Diamond until five days later, when he and King told the Barclays chairman that Diamond no longer had their support as boss of Barclays. It has already emerged that the regulator had a strained relationship with the bank even before the Libor scandal emerged.
Barclays has lost several large accounts over the scandal as businesses, local authorities and individuals cut their ties with the bank.
Over the weekend it emerged that Barclays planned to pull out of the rate-setting panel for interbank lending in the United Arab Emirates.
Libor is used to determine borrowing casts for trillions of dollars in financial products, including mortgages, credit cards and student loans.
Barclays faces investigations for inflating the interest rates it submitted for Libor to cream off excessive profits from lending. It is also under scrutiny for depressing the Libor figures to project an image of a strong bank that could borrow at low rates itself.
Barclays said in its evidence to the Treasury select committee: “Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep Libors so high and he therefore passed down a direction to that effect to the [traders].”
Barclays has said that Del Missier was investigated by the Financial Services Authority for his actions and ultimately deemed to have changed the level of Libor – and that it did not take any enforcement action.
It emerged that in 2010 his basic pay of £734,000 was bolstered to more than £40m when performance-related deals were included.
Once the former Barclays chief executive realised he was the biggest problem facing the bank, it was time to go
On Monday afternoon Bob Diamond rehearsed for his planned appearance before the Commons Treasury select committee. As his public relations team ran him through question after question that the MPs were likely to fire at him, the American born banker saw that he – and his brash personality – was the main problem facing Barclays bank.
Diamond, 16 years at the bank, but only 18 months into his dream job as chief executive, spoke to a few close colleagues before setting off for home, knowing that David Cameron had used the revelations about Barclays’ attempts to manipulate the London interbank offered rate (Libor) to call an inquiry into the wider banking industry.
Though regulators admit that Barclays is only one of up to 20 banks caught up in the scandal, Diamond epitomised it.
Diamond rang Barclays chairman Marcus Agius and told him it was time for him to go. It was a stunning change in stance from the defiant email to staff he had sent a few hours earlier, telling them he “loved Barclays” and was committed to putting right the wrongs exposed by regulators.
Behind the scenes bigger forces were at work. The regulators had watched the political temperature rising during the day and the Bank of England governor, Sir Mervyn King, and Lord Turner of the Financial Services Authority secretly met Agius, who had himself resigned only hours before, in the late afternoon.
King would not comment but Turner said: “There were major challenges for Barclays in making sure they could convince people there had been a fundamental cultural change and we simply communicated to the board that these were issues they needed to think about. It was for them to agree whether they could achieve that degree of change under the current leadership.”
Agius was hastily reinstated, into a bigger job looking after the company until a new chief executive is appointed. He refused to comment, but it is clear that the words exchanged between the three top men were key. Diamond’s days were numbered.
Damaging emails published by regulators had shown traders promising to fix Libor at certain levels – so the bank could make extra profit – with quips such as “this one’s for you big boy” and references to bottles of Bollinger champagne proving impossible to justify. Then there was the confusion about whether, during the 2008 banking crisis, the bank had deliberately manipulated down the price of Libor in attempt to demonstrate to the outside world that it was not, in the words of one of the emails, “in the shit”. Documents published ahead of the select committee hearing show Diamond’s emailed note of his 29 October 2008 conversation with Paul Tucker, a deputy governor of the Bank of England. Addressed to the then-Barclays chief executive John Varley, and copied to Diamond’s close lieutenant Jerry del Missier, it will be scrutinised by MPs. Del Missier used it as the basis to tell Barclays staff to reduce their Libor quotes. Del Missier, who was investigated by the FSA and cleared, also quit on Tuesday – a month after he was appointed the bank’s chief operating officer. At the select committee Diamond is expected to say that he did not believe Tucker told him to cut Barclays’ rates.
During an emergency board meeting on Monday night the bank’s non-executive directors had to take some quick decisions. The board had intended the departure of Agius to take the heat off Diamond before his appearance at the select committee and give the board some breathing space to ensure there was a possible successor lined up to replace Diamond once the dust had settled. The plan backfired spectacularly. Agius, in a hastily convened conference call, said: “What I hoped to do was lower the temperature surrounding the bank but it became evident as Monday went on if anything the temperature rose.”
Within minutes of the announcement hitting the stock exchange on Monday, Labour leader Ed Miliband was on the sofa of ITV Daybreak calling for Diamond to go. Liberal Democrat peer Lord Oakeshott, never short of a scathing quote, particularly about Barclays, was quick to describe the departure of Agius as the equivalent of kicking out the passenger rather than the driver. “The board is so hopeless they’ve just shot the head of the firing squad and missed the prisoner,” Oakeshott said.
The government, under pressure to launch a fully-blown Leveson-style inquiry, used it as a moment to set Andrew Tyrie, chairman of the Treasury committee, the extra task of chairing a joint committee of MPs and Lords to investigate the banking industry.
When Diamond’s resignation was announced at 7.30am on Tuesday – 30 minutes after the usual time for such announcements, the hastiness of the decision was evident. Agius had called the chancellor, George Osborne, in the early hours to tell him Diamond was going while he was taking over as full-time chairman to find a new chief executive. Osborne, in a Today programme interview shortly afterwards, said: “I think and I hope that it is the first step towards a new culture of responsibility in British banking.”
In a statement Diamond praised “an extraordinarily talented management team that I know is well placed to help the business emerge from this difficult period as one of the leaders in the global banking industry”. But the reality is that the business he joined in 1997, and transformed into a powerhouse in investment banking on the world stage, is poised to undergo as radical an upheaval as the one he led in the go-go years before the 2008 banking crisis.
One of nine children, Robert E Diamond – known internally as RED – grew up in Concord, Massachusetts. His parents were teachers, a career path he had intended to follow by starting out as a lecturer in management and organisation at the University of Connecticut. After four years, in 1980, he ended up at Morgan Stanley, following a businessman who had mentored him, moving to Credit Suisse First Boston a decade later before arriving at Barclays in 1996.
A sports fanatic – when he ran BarCap his glass cube office was full of sports memorabilia – he adopted Chelsea as his “soccer” team, becoming a regular visitor to their dressing room and presenter of trophies when the club won the premier league, sponsored by Barclays. He loves Boston Red Sox and American football team Patriots, and while his children – now adults – were young ran the little league football in Hyde Park, London.
A keen skier and regular golfer and tennis player, he put his drive and energy into building BarCap into a major league player. It was he who boarded a flight to the US in mid-September 2008 with his close lieutenants to try to buy Lehman Brothers in the hours before it collapsed. While the collapse unleashed a wave of fear across global markets, it led to a massive opportunity for Diamond to buy just the Wall Street business and relocate back to his native America where his children were now studying after their early years at the American school in St John’s Wood.
The BarCap culture – inside a bank whose roots have Quaker origins – always jarred with the staid high street banking business, but even in City cultures was regarded as a testosterone-charged, alpha-male environment – surprising perhaps for a man who in the past has used his fortune to sponsor a chair of women’s studies at Colby College in Maine.
The current controversy over Libor rates is the toughest reputation hit BarCap has had to take. But it is by no means the first. Lord Mandelson once described Diamond as the “unacceptable face” of banking. There were also the four traders who celebrated with a lavish £44,000 dinner at Petrus, Gordon Ramsay’s restaurant; and the legal action against the Guardian to try to suppress details of tax avoidance schemes run by Barclays. Whistleblowers told the Guardian about poker games, a “cow eating club” and sackings inside the structured capital markets business inside BarCap.
More recently, there was the high profile decision to shut down two tax avoidance schemes submitted to HM Revenue & Customs by the bank, even before the bank revealed it had paid a £5.7m tax bill incurred by Diamond when he was relocated back from New York to London to become chief executive in January 2011.
In his years at the bank Diamond transformed Barclays’ disastrous investment bank BZW into a reborn Barclays Capital (BarCap) and rejuvenated the fund manager Barclays Global Investors (BGI), sold off during the banking crisis to bolster the bank’s coffers.
John-Paul Crutchley, banks analyst at UBS, said: “It is fair to say that there is no one individual who has imposed more of their vision, personality and character on a UK bank over the last decade than Bob Diamond at Barclays. From the creation of BarCap in 1997 to the acquisition of Lehman’s US business and the sale of BGI – all were driven by Bob Diamond.”
With banks analysts and shareholders now questioning the over-reliance of Barclays on investment banking, Agius was careful yesterday not to say that Diamond’s departure – or that of del Missier – would mark the dismantling of an investment banking empire which began with “humble beginnings” in 1997.
An exhausted Agius instead paid tribute to Diamond, saying he had “invigorated and focused the whole organisation” in his 18 months as chief executive. “We will miss his energy and vision,” said Agius.