MarketLine Blog

Bob Diamond resigns as Barclays CEO, but the end of the LIBOR scandal is nowhere in sight

 

Bob diamond yesterday resigned from his position as CEO of Barclays after being implicated in the LIBOR rate fixing scandal.

In banking circles, Bob Diamond has long been considered something of a genius. After forging a reputation as a ruthless profit generator at Morgan Stanley and then CS First Boston, Diamond joined British bank Barclays as Head of Global Markets.  He was then made CEO of the bank’s newly established investment banking arm, Barclays Capital in 1997.

Under Diamond, Barclays Capital became one of banking’s great success stories. It recruited top talent and rewarded them handsomely through what many have called a rampant bonus culture. In 2004, its pre-tax profits exceeded £1 billion ($1.6 billion) for the first time. By 2006 this had doubled and although the division was affected by the banking crisis of 2008/2009, it rebounded to post pre-tax profits of £2.5 billion ($4 billion) in 2010. This stellar performance gave Barclays a firm foothold in the lucrative investment banking sector and propelled Diamond to new heights. In January 2011, he was made Group Chief Executive, a position he held until yesterday.

Barclays was last week charged with deliberately manipulating LIBOR and Euribor rates, an offence for which it has been heavily fined. The UK’s FSA imposed a £59.5 million ($95.4 million) penalty, while the US Department of Justice and the Commodity Futures Trading Commission (CFTC) fined the bank £102 million ($163.6 million) and £128million ($205.3 million) respectively, forcing Barclays to pay a total of around £290 million ($465.1 million).

The terms LIBOR and Euribor are not exactly layman’s terms and do not mean much to many people. Their importance cannot, however, be doubted. LIBOR alone anchors contracts amounting to around $300 trillion, the equivalent of $45,000 for every human being on the planet. This shows the seriousness of such rate manipulation.

Barclays has paid not only in the form of fines, but also in reputational damage that caused its share price to plummet by 15% last week. Bob Diamond and the Barclays Chairman Marcus Agius have paid for their jobs but at this point look merely like scapegoats and what we have seen so far looks like it may just be the tip of the iceberg.

Fellow British banks RBS and Lloyds Banking Group have also been implicated in the scandal and individuals from a number of financial institutions are now being investigated, with the Daily Mail reporting that the FBI is investigating 14 Barclays staff. When resigning yesterday, Diamond implicated both the UK government and the Bank of England (BoE) in the scandal. Barclays released an email from 2008, which states that Diamond spoke to Paul Tucker of the BoE, who said that senior officials in Whitehall were concerned that Barclays was reporting excessively high daily borrowing rates in the weeks after the collapse of Lehman Brothers, and that it didn’t need to always do so.

The UK Serious Fraud Office is considering whether to bring criminal charges against bankers who tried to manipulate the inter-bank lending rate and so the scandal looks set to rumble on for some time yet.

Access MarketLine’s ‘Barclays Capital: Building on a success story’ Case Study or our Barclays Company Report.

Posted in Financial Services.

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