The Daily Beast reports: As the chairman of Barclays resigns in the wake of an interest-rate fixing scandal, the city of London is in crisis and Prime Minister David Cameron has announced an urgent Parliamentary inquiry.
“It’s a turning point,” said Martin Vander Weyer, a former director of the investment arm of the British bank, now known as Barclays Capital. “Three scandals have come in Britain in a perfect storm last week.” The NatWest online bank didn’t work for 10 days because of a software problem. Meanwhile, Barclays was caught mis-selling complex interest-rate insurance to small companies and, more important, a LIBOR scandal has emerged.
The London Interbank trading system, known as LIBOR, and its smaller counterpart, EURIBOR, between them set the benchmark for interest rates around the world. The self-regulated system relies on banks accurately reporting the costs of their own borrowing, but the Financial Service Authority and the U.S. Department of Justice fined Barclays a combined $450 million last week for fixing the rate from 2005 to 2009. The early misreporting was to the benefit of the company’s derivatives traders. During the credit crunch, when Lehman Brothers collapsed, Barclays systematically underreported its borrowing costs in order to appear healthier—and thus avoid the nationalization that overtook other British banks, such as Royal Bank of Scotland and Lloyds Halifax.
“It’s not a victimless crime,” Labour MP John Mann, a member of House of Commons Treasury select committee, told The Daily Beast. “If there’s fraud and misreporting, other people lose out: mortgage holders, other counterparties,” he said. “It’s like insider dealing”
Internal emails published by the Justice Department reveal a culture of greed and apparent insider trades, with one trader thanking another for rigging the rates: “Dude I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger! Thanks for the libor.” The Serious Fraud Office in the U.K. is now investigating the case, with class-action lawsuits pending in the U.S.
Despite the resignation of chairman Marcus Agius, the CEO of Barclays, American-born Bob Diamond, remains in place. He wrote to his staff today to apologize to the thousands working in the retail branches for the misbehavior of the traders in the investment arm and to announce an internal investigation. However, Diamond is being described as “the most hated man in Britain” and is due to face the new parliamentary inquiry on Wednesday.
“Mr. Diamond should be sacked,” said Mann, “and LIBOR should be regulated rather than self-regulated.”
Diamond resigned today.