Defiant Barclays

By Felix Salmon
July 3, 2012

The resignation of Bob Diamond notwithstanding, it seems that Barclays is sticking to its scorched-earth, if-we’re-going-down-we’re-taking-you-with-us strategy. In its submission to the UK parliament in the run-up to Bob Diamond’s testimony tomorrow, Barclays is very aggressive and not at all contrite.

The submission starts with a statement that Barclays should somehow be viewed in a better light than all the other banks:

The bank has invested nearly £100m to ensure that no stone has been left unturned [in the investigation]. The bank’s exceptional level of cooperation was expressly recorded by each of the Authorities, and was described by the DoJ as “extraordinary and extensive, in terms of the quality and types of information provided” and ”the nature and value of Barclays cooperation has exceeded what other entities have provided in the course of this investigation.” That cooperation has led to Barclays being the first to reach resolution of these issues. It ironic that there has been such an intense focus on Barclays alone, caused by our being first to settle in the midst of an industry-wide, global investigation.

It then launches into a long disquisition about the now-notorious phone call between Diamond and the Bank of England’s Paul Tucker:

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…

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.

All we know of the phone call is Diamond’s contemporaneous note of it, preserved in a fuzzy photocopy.


This is Barclays’s none-too-subtle attempt to finger the Bank of England in the whole sordid affair, implying that its Libor price-fixing was somehow a consequence of this phone call from Tucker. But if you look at the FSA’s Final Notice on the Libor fixing, all of the dubious activity takes place before the phone call — between January 2005 and July 2008.*

Besides, only in the minds of traders who had been fixing Libor for years would Tucker’s conversation have ever been taken as a nod and a wink to do just that. Libor is a measure of the interest rate at which banks lend to each other; Tucker was clearly just saying that Barclays should work with those other banks to get that rate down.

There isn’t a transcript of this conversation anywhere, but I can easily imagine Tucker saying something like this: “lots of senior Whitehall types are seeing the high rates you’re paying in the Libor market, and they’re asking me about it. I’m sure you don’t need my advice here, but you really shouldn’t be so high”. That’s a regulator doing what regulators should do — telling banks to get their act together and normalize their operations. What he meant, I’m sure, is that Barclays should do whatever it took to improve its reputation with other banks, so that they would lend to Barclays at lower rates.

And yet the corrupt Barclays operation, including Jerry del Missier, reckoned that it would be easier to just go back to their old sordid ways, and nobble the Libor fixings instead. Or at least that’s the impression you get from the Barclays document. If you look at official-sector documents, the worst thing that Barclays did in the wake of the phone call was basically compliance-related.

Barclays, in its submission, tries very hard to show that for most of the time that the Libor price-fixing was going on, it still reported higher rates than most other banks. In other words, Barclays is still trying to exonerate itself, and/or point fingers at other banks and even the Bank of England. I’m sorry, but it’s far too late for that. The verdict has come down, the fine has been paid. The job of Barclays, now, is to put the whole episode in the past, say that it’s sorry, and move on — under a new chairman and a new CEO.

But don’t expect much along those lines from Diamond, tomorrow. He’s still sore — and he’s going to make sure that parliament knows it.

*Update: Thanks to James Mackintosh for finding allegations of more dubious activity in paragraph 12, which talks about “numerous occasions between September 2007 and May 2009″. Obviously the beginning of that period still predates the phone call, but the end doesn’t.


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Perhaps it is a good idea for Barclays to move on, for its own benefit. But I fail to see that the Bank of England should be construed as immune to a full and frank inquiry as to whether it jawboned banks down in order to preserve the fiction that the interbank lending market was not utterly broken. Let’s not prejudge the situation, shall we?

Posted by EpicureanDeal | Report as abusive

Why would it cost “nearly £100m” to investigate what happened? It’s their own company!

Posted by KenG_CA | Report as abusive

@TED, I read your post on this as well. You seem to fall into the “we are stupid and incompetent, but not criminal” mindset. That defense has worked for bankers for a long time, and might even be true, at least in this case.

But it doesn’t seem to hurt any bankers’ or traders’ incomes. Mupp-, er, I mean investors, perhaps, but not the insiders who exhibit this behavior. I would be more than happy to proclaim to the world that I am an idiot for some of these paydays, and a luxury doghouse is looking pretty good right now.

I ask out of intellectual curiosity; this is not my world, and I am trying to better understand it.

Posted by Curmudgeon | Report as abusive

“That’s a regulator doing what regulators should do”
Maybe, except that the BoE wasn’t the regulator of banks…

Posted by alea | Report as abusive

What is your basis for saying “Tucker was clearly just saying that Barclays should work with those other banks to get that rate down.” ?? The only record we have of this conversation is Diamond’s. Absent any testimony from Tucker, we should take that at face value, and it states “that it did not always need to be the case that we appeared as high as we have recently”. It’s equally likely that Tucker was telling Barclays to submit lower quotes – that is either encouragement to manipulation, or it’s the BoE enabling collusion between the banks.

What you may be missing as background is that between fall 2008 and early 2009 everybody in a banks trading floor knew that Libor was being manipulated. The interbank market had ceased to exist, since nobody was lending to anybody. In that situation, all quotes submitted were guesstimates. It was understood that there was strong pressure from above, with regulatory blessing, to submit low guesstimates as opposed to high ones. The regulators were pretty desperate too – there is no point in having a super low benchmark rate if the rate everybody uses to calculate lending costs stays sky high. It was imperative that Libor follow Fed Funds down, and it did – even though there was no actual inter-bank lending happening. For Mervyn King to throw Diamond to the wolves now is really really rich.

Posted by shamir_k | Report as abusive

“What he meant, I’m sure, is that Barclays should do whatever it took to improve its reputation with other banks, so that they would lend to Barclays at lower rates.” (FS)

** ponders the distinction between ‘naïveté’ and ‘disingenuousness’ **

Posted by MrRFox | Report as abusive

I have to say I think the BBC has a much better understanding of this scandal. The problem was that Libor isn’t a “market”, its a survey. In the best of times, we can expect a bank to honestly report the rate it is paying to borrow money in the interbank market on an unsecured basis but by 2007 this stopped being relevant. By 2007 the survey became a meaningless theoretical exercise of reporting what the bank thinks it might have to pay if it did borrow in the interbank lending market if there was a bank that would actually lend to them.

Felix says “Tucker was clearly just saying that Barclays should work with those other banks to get that rate down” which sounds an awful like collusion to me and obviously illegal (in the US at least).

Further on Felix says that he thinks Tucker was simply telling Barclays to “improve its reputation with other banks, so that they would lend to Barclays at lower rates”. Again that sounds awfully naive, as the bbc says the Bank of England surely knew that the interbank lending market was dead, they were intermediating those flows as a consequence. They also certainly understood that other banks were throwing in lowball numbers simply to avoid looking stressed. Tucker also surely knew there were no short term ways “to get their act together”, in the middle of the crisis you are either insolvent in which case nothing is going to save you or you are illiquid in which case appearances matter a whole lot. Appearing less stressed, if credible, is a way to avoid a liquidity crisis. This gets to the numerous “scandals” about Fed transparency etc… Sometimes too much information can spark a rational bank run, if your the Bank of England it might have been reasonable to suggest that Barclays not appear to be the most stressed bank on the street. money-18701623

Posted by Splittorff | Report as abusive

Felix, this is a wonderful post with great insight. Thank you for the good work.

Posted by WeWereWallSt | Report as abusive

[You seem to fall into the “we are stupid and incompetent, but not criminal” mindset. That defense has worked for bankers for a long time]

Specifically, it has worked ever since the dot com era, which is the last time it was tried in court, at which point it was found not to work.

[The only record we have of this conversation is Diamond’s. Absent any testimony from Tucker, we should take that at face value]

If you use this as a general principle for assessing the veracity of statements in financial cases, you are going to end up owning a lot more bridges than you have any real use for. In any case, if we are going to take this at face value, shouldn’t we also take at face value Diamond’s specific statement that Tucker did not tell him to lower the quotes?

Posted by dsquared | Report as abusive

We really can’t take Diamond’s note at face value; I’ve sat on many committees and found the minutes ended up suiting the needs of the Secretary of the Organisation, and had only a passing resemblance to what actually happened or was in reality said. That’s because people tend to only remember the bits they want to hear. However, as Confucious said “The faintest ink lasts longer than the strongest memory”.

Of course, as a Civil Service organisation, the BoE will almost certainly have notes about everything; bureaucrats are like that. They also don’t easily publish their notes in the press… their job is to keep secrets, not to broadcast them.

Posted by FifthDecade | Report as abusive

Is it not obvious that the entire BoE episode is but a smokescreen by Barclays’ to avoid/mitigate scrutiny of its flagrantly self-serving manipulation of Libor in the years prior to the crisis?

If Diamond goes down for conspiracy, his conviction will have nothing to do with anything concerning the BoE’s desire to calm markets during the period of turmoil. Embarrassing the Bank is Barclays’ attempt at creating a Mexican-standoff situation, in an effort to avoid criminal prosecution. It might work.

Posted by MrRFox | Report as abusive

(quote) “And yet the corrupt Barclays operation, including Jerry del Missier, reckoned that it would be easier to just go back to their old sordid ways, and nobble the Libor fixings instead.”

the published emails fingered barclay’s corruption and its gratuitous kiss-butting favours for the “big boy” insiders

time to look forward to the ECB’s new Target2Securities platform

and away from those LIBORious snakes

Posted by scythe | Report as abusive

another possibility is that the bank of england was telling diamond in the nicest possible way that the rates that Barclays was reporting appeared to be unrealistically high, i.e. higher than actual market conditions would justify. If I am not mistaken about ten or twelve years back there were allegations that certain traders in oil and/or gasoline were doing this to Platt’s quotations for non exchange traded grades. Those quotaes were also based on surveys of market participants.

Posted by hcm1 | Report as abusive

Salmon is part of the old guard journalism that still seems to believe that central banks are not of the banks, by the banks, and for the banks – now I agree that Barclays is a bank and therefore Satan’s minion.

But you can’t have a brain and not realize that the BoE (Bank of England – just like our FED) is the LEADER of Satan’s angels, if not Satan himself.
All these central banks do is bail out their children, the private banks. They refuse to enforce banking laws, and they refuse to regulate effectively. ALL they want to do is save banks (which the MARKET has shown are run by frauds and incompetents – and if we had a competent and honorable DoJ, criminals as well) – and of course, this means manipulating interest rates as well. Do you expect a memo from BoE stating “you are required to manipulate LIBOR contrarty to section (applicable law)?”

Of course the BoE, as well as the FED will do ANYTHING to save banks. They think that what is good for the banks is…well, good for the banks and f*ck everybody else.

Posted by fresnodan | Report as abusive

@fresnodan Sorry mate, you’re a bit off kilter there.The US Fed may be owned by your banks, but the BoE is a govt institution run by career civil servants. What they are after is stability; change actually makes them do something, it’s unpredictable, and they like to have all the answers before the questions come up.

Posted by FifthDecade | Report as abusive

A cornered beast will always bite back hard. Time to finish this thing off and send a few limeys to jail.

Posted by krimsonpage | Report as abusive

I come down on the side of what I’ll describe as the combined position of @Splitorff/BBC, The Epicurean Dealmaker, and Matt Levine at Dealbreaker. I agree that the pre-crisis manipulation by Barclays had nothing to do with the BofE and feel strongly that Tucker knew exactly what he was saying on October 29, 2008, and that it meant “Barclays, lower your LIBOR submission”. I can also see how a central banker could easily think that this was OK, especially during a crisis: manipulating short-term interest rates is what central banks do every day.

Re the pre-crisis manipulation of LIBOR, the BBA deliberately excludes the several highest and lowest LIBOR submissions in an attempt to make such manipulation harder. Doesn’t that suggest that the traders at Barclays trying to move LIBOR had contacts at other banks to make sure it would work? I expect that the ongoing investigations of other banks will find similar behavior elsewhere.

Re LIBOR being a “made-up” number during the crisis, I believe that was the case pre-crisis as well. While in normal times there might be a market basis for the overnight LIBOR, my understanding is that 1-month, 3-month, 6-month, and 1-year LIBOR were largely or completely estimates well before the crisis since there was little if any unsecured interbank lending in those maturities. These estimates might have been a little better because they applied a yield curve to a real overnight LIBOR number, but they still weren’t actual market numbers.

Lastly, LIBOR is hardly alone in being a basically “made-up” rate that impacts lots of loans. The “Prime Rate” isn’t tied to any real market measure. It usually moves with the Fed Funds Rate but doesn’t have to do so. At this point it has no real definition – banks just state “x% is our Prime Rate”. It’s not as widely used as LIBOR, but lots of small business loans, credit cards, ARM’s, and HELOC’s are indexed to the Prime Rate.

Posted by realist50 | Report as abusive

You are right to say the fine has been imposed and that is that.Barclays fiddled the Libor figures and have to take the wrap.The fact that other banks were doing this too is not relevant.If I get a speeding ticket for doing 85 mph I can hardly use the defense that I was less guilty because others passed me doing 90 mph.

Most of the other CEOs at the other banks have gone now too,so that will likely be the end of heads rolling.Though no bank will ever get over the loss of trust the public now has in them.

Posted by vincentjohn | Report as abusive

Cynical me wonders what is really going on here. OK, Barclays manipulated LIBOR rates. And why is this coming up right now? Barclays aren’t innocent, but they can still be entirely correct in saying that other people are just as guilty. And if that is the case, the Bank of England is probably aware of this. So, why does somebody want with a passion to get Bob Diamond out of the way right now?

As for what really happened with the phone conversation, this sounds like typical plausible deniability from the top. Paul Tucker said something like “it did not always need to be the case that Barclays appeared as high” according to somebody “senior”. (You have to wonder who is so “senior” at such levels that they can’t even be identified.) Bob Diamond “did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier.” I’m sure that Jerry del Missier conveyed effectively to his subordinates that certain things might be desirable, without actually telling them to do it. When people at the top want something done that happens to be illegal, as it’s said above, they don’t write a memo saying “Please fix LIBOR, in contravention of section X of act such-and-such”. Of course they say something that might sound like they didn’t mean at all to break the law. You don’t get to the top if you are a complete idiot, and only a complete idiot would do that.

Posted by Doly | Report as abusive