Last updated: June 27, 2012 7:53 pm

Barclays fined a record £290m

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barclays COMPANIES

US and UK authorities have fined Barclays more than $450m for attempting to manipulate the London interbank offered rate, a benchmark interest rate that is used globally to set the price of everything from credit card fees to corporate loans.

Bob Diamond, Barclays chief executive, said he and three of his top lieutenants would waive any bonus for this year “to reflect our collective responsibility as leaders” as the British bank admitted to “misconduct” spanning five years and three contintents in its submissions to the bank panels that set Libor and Euribor, the Brussels rate.

The Barclays settlement is the first shoe to drop in a sprawling probe that was launched by the US Commodity Futures Trading Commission and now spans nearly a dozen regulators and more than 20 banks. Wednesday’s settlements were with the UK Financial Services Authority, the CFTC and the US Department of Justice.

The investigations are continuing and the record fines from the FSA and CFTC are expected to set a basis for settlement negotiations with individuals and other institutions. Libor, the reference rate for $360tn in contracts worldwide, is set by banks submitting rates at which they believe they can borrow in a reasonable market.

But the statements by the authorities included email exchanges in which Barclays’ submitters agreed to requests from traders to adjust their rates, sending responses including “always happy to help” and “done ... for you big boy”.

In one email exchange, an ex-Barclays employee successfully asks a derivatives trader to submit a lower Libor rate and then writes “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger.”

Diamond waives bonus over fine

Bob Diamond

Barclays’ $450m settlement with regulatory authorities for misconduct and attempted manipulation of Libor has prompted CEO Bob Diamond and three of his key lieutenants to waive potential bonuses for this year “to reflect our collective responsibility as leaders”, writes Daniel Schäfer .

“I am sorry some people acted in a manner not consistent with our culture and values,” Mr Diamond said.

The move came only a few months after American-born Mr Diamond, who built up and led Barclays’ investment bank before becoming CEO last year, came under heavy fire from investors over his £25m pay for 2011. He had been granted this pay package after Barclays’ return on equity had dropped from 7.2 per cent to 5.8 per cent in the past year, while the UK bank’s share price had fallen by almost a third and underperformed the wider banking index.

Investors were particularly angry about a £5.75m bill Barclays paid for Mr Diamond to compensate him for a tax disadvantage after his relocation to London.

He only escaped a full-scale investor revolt at the annual meeting after he agreed to tougher conditions on his £2.7m bonus and promised to increase dividends. At the April AGM, nearly a third of shareholders failed to back the pay report.

Barclays admitted to two main types of misbehaviour and has put in place new controls on its submissions to rate-setting process. From 2005 to 2007, the bank took requests from its own derivatives traders and those at other banks into account when making submissions to Libor and Euribor.

The bank also admitted to lowballing its Libor rate submissions to paint a false picture of its financial health to the market after the collapse of Northern Rock in the UK and Lehman Brothers in the US. During that period, senior Barclays managers expressed concern about media reports noting that Barclays’ Libor submissions were higher than average – suggesting it was a riskier proposition for other banks looking to lend money, the FSA said in its notice.

This concern “in turn resulted in instructions being given by less senior managers at Barclays to reduce Libor submissions in order to avoid negative media comment. The origin of these instructions is unclear,” the FSA said.

While the settlements focus on “attempted manipulation”, the DoJ statement of facts said, “on some occasions, however, the manipulation of Barclays’ submissions affected the fixed rates,” a statement that could leave the bank open to class action lawsuits from Libor users.

Barclays received reduced penalties for early co-operation and said it had been granted conditional leniency from the antitrust division of the DoJ with respect to Euribor. It has also sought whistleblower status from the European Commission’s competition commission which is looking at whether there was a cartel to affect the rates and was not part of Wednesday’s settlement.

“People taking out small business loans, student loans and mortgages, as well as big companies involved in complex transactions, all rely on the honesty of benchmark rates like Libor,” said Gary Gensler, CFTC chairman. “Banks must not attempt to influence Libor or other indices based upon concerns about their reputation or the profitability of their trading positions.”

Andrew Tyrie, chairman of parliament’s Treasury Select Committee told the FT that he plans to haul Mr Diamond and the leadership of the FSA before his committee to learn how the violations could have occurred.

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