This morning, British investment bank Barclays announced that its CEO Bob Diamond would immediately resign in the wake of a massive fine over manipulating interest rates a few years ago.
Specifically, Barclays has been accused of submitting false numbers about the rate at which it was borrowing money, skewing LIBOR (which is an index measuring the rate at which banks borrow money).
Diamond will be at a government hearing tomorrow, and in preparation for that, Barclays has submitted a stunning letter to the government, basically accusing the Bank of England of being the real conspirator behind the interest rate manipulation scheme.
More specifically, the bank says that its CEO Bob Diamond had a conversation with BoE deputy governor Paul Tucker, wherein Tucker inquired why Barclays was submitting rates so high compared to other banks. This conversation was relayed to one of Diamond’s lieutenants Jerry del Missier, who apparently concluded that Barclays was being pressured by the BoE to lower their number.
There are two big implications that are interesting: One is the obvious accusation that the BoE pressured Barclay’s to lower its stated borrowing rate. The other is the implication that EVERY other bank was doing the same thing, since the gist of the call between Diamond and Tucker was that Barclays needed to get into line with the other banks.
Here’s the section of the letter.
You can download it here.
During October 2008, in the wake of the collapse of Lehman Brothers, when liquidity conditions had tightened acutely, Barclays raised its US Dollar LIBOR submissions more significantly than other panel members. In the month of October 2008, in particular, Barclays US Dollar LIBOR submissions for the 3 month maturity were the highest or next highest of the panel on every single day of the month and therefore excluded from the calculation of LIBOR. Barclays did not understand why other banks were consistently posting lower submissions; Barclays firmly believed that the other panel members were not, in fact, funding at a lower cost than Barclays, and we were disappointed that no effective action was taken, notwithstanding our having raised these issues with various Authorities during the whole financial crisis period as outlined in the attached timeline.
As one would expect, Barclays (including Bob Diamond and Jerry del Missier) was in close contact with the Bank of England and other Authorities about the liquidity crisis generally. On 29 October 2008, Bob Diamond received a call from Paul Tucker, the Deputy Governor of the Bank of England. The substance of that call was captured by Bob Diamond via a note prepared at the time. A copy of that note is appended to this document; it was circulated to John Varley, then Barclays Chief Executive, and Jerry del Missier, then President of Barclays Capital.
Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier. Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However 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 submitters.
There was no allegation by the Authorities that this instruction was intended to manipulate the ultimate rate. The bank’s submissions had consistently been excluded from the LIBOR calculation. Moreover the instruction became redundant in a matter of days as market conditions improved.
The FSA investigated Jerry del Missier personally in relation to these events and closed the investigation without taking any enforcement action.
Here’s the email that Bob Diamond sent to Barclays’ John Varley and Jerry del Missier at the time …
Click the letter to enlarge …