July 5th, 2012 (updated July 6th, 6.35pm and 11.58pm)
Smearing the facilitators?
Ex-Barclays chief executive Bob Diamond had been tipped to ‘throw his toys out of the pram’ in the Treasury Select Committee hearing this afternoon. He was expected to lash out at the authorities that had engineered his ousting. It was also thought he would try to draw the Bank of England and the Labour government of Gordon Brown into the scandal by blaming them for pressuring him, or at least telling him it would be acceptable, for Barclays to massage its Libor numbers downwards at the height of the financial crisis. A vengeful Diamond had also been expected to name and shame some of the “senior Whitehall sources” to whom BoE deputy governor Paul Tucker referred in a phone conversation on October 29, 2008.
In the end, however, the 60-year-old American did none of these things.
In a rambling and sometimes tetchy three-hour session in Portcullis House, Diamond said that, when he spoke to Tucker on the phone on October 29, 2008, the central banker was primarily notifying him of concern among “Whitehall sources” that Barclays ‘ high Libor rates might give the impression it was struggling to fund itself in the private market. The phone call took place two and half weeks after the bailouts of Lloyds TSB, HBOS and RBS, and two days ahead of a £7bn Middle East fund raising with which Barclays chief executive Varley and Diamond were seeking to avoid avoid a taxpayer-funded bailout. Diamond seems to have believed that the Labour government, though not chancellor Alistair Darling, were seeking to nationalise Barclays, something he was determined to avoid, if only to protect his freedom of manoeuvre and bonuses.
“‘The importance of the call [with Tucker] to me was the heads up about the concerns in Whitehall who felt that since we were the high Libor submission it might mean something different than it meant.’
“… He felt that our Libor rates relative to the other 15 [banks making submissions] could be relatively lower … I don’t believe it was an instruction.”
“I didn’t take it as a directive, I took it as either a heads up that you’re [submitting Libor rates] high or an annoyance that you’re high.”
Diamond also claimed to know nothing of routine and casual attempts to manipulate Libor by Barclays traders in 2005-07, the ways in which they cajoled the Libor submitters who falsified the bank’s Libor rates for personal and the bank’s gain, with offers of bottles of Bollinger, etc. He said these actions were “reprehensible” and that he “got physically ill” when he first learned of them on the weekend of 23-24 June (the MPs were incredulous at these claims. I personally find them impossible to believe, and committee chairman Andrew Tyrie later declared he found some of Diamond’s evidence “implausible“).
Teresa Pearce MP, attacked Diamond over his failure to notice what appears the epidemic of wrongdoing at the bank:
“You keep saying you love Barclays. It seems like you’ve never even met Barclays, never mind love Barclays.”
Perhaps the biggest bombshell to come out of the session came early on, when committee chairman Andrew Tyrie MP read out excerpts of a leaked ‘Arrow’ assessment from the FSA dating from September 2010 ( a few weeks before Diamond took over as chief executive from John Varley). This revealed the regulator’s concerns about Diamond’s leadership and cultural failings. It sought assurances from the Barclays board that he would curb excessive risk taking at the bank. The reservations about Diamond were reiterated in February 2012 when the FSA told the bank that trust had broken down between itself and the bank. I have not seen the documents themselves, but here’s what Faisal Islam of Channel 4 News, who first picked up on this strand, wrote in his blog:-
Tyrie suggested in a question, going as far as saying that the “FSA lost confidence” in Diamond’s leadership after a series of crises. The Protium scandal in particular, a questionable means for Barclays to dispose of toxic assets, had raised eyebrows. All of this was revelatory and caught Mr Diamond off guard.
Diamond made much of the fact Barclays was the first bank to come clean about its role in the Libor manipulation scandal and that fact it had willingly cooperated with the CFTC, DoJ and FSA over a two to three year period. Diamond clearly sees this as a massive positive and believes that he deserves to be recognised as some sort of ethical hero. In truth, however, I suspect the decision to own up to the wrong doing was probably purely pragmatic, a means of minimizing the penalties and being granted an immunity from criminal prosecution in the US.
He clearly resents the massive kicking that he and the bank and he have been given in recent days from politicians, the media and protesters. Describing years of painstaking cooperation with regulatory agencies to uncover the practice, he said:-
“This week the focus has been on Barclays because they were the first. I think it’s a sign of the culture of Barclays that we were willing to be first, we were willing to be fast and we were willing to come out with this …. ”
‘The actions we took when we found out, I think all of them were appropriate, including recognising that we would be out ahead of the pack and helping the regulators. We did not think the focus on this would be as intense in terms of potentially harming our brand and reputation.’
He also took also took a swipe at regulators who took no action, when Barclays raised its concerns about the failings in Libor setting going back to 2007. Diamond said the bank had alerted the Bank of England, the FSA, the US Federal Reserve and the British Bankers’ Association, but nothing had happened. Tyrie said they were probably asleep at the wheel.
An honest institution?
There is however a disturbing disconnect here. Diamond sees Barclays, and indeed himself, as a paragon of virtue, a bank dedicated to looking after its clients needs, a powerful force for the good in the global economy.
However the reality seems rather different. Either the bank’s systems are so corroded they are incapable of picking up crimes and misdemeanours by Barclays staff. Or the bank is simply too big to manage (in which case it should be broken up). Or Diamond is another platitidinous bullshitter who’s providing cover for some sort of organised crime syndicate. Here is a brief refresher of some of the more shocking scandals that have emerged from Barclays in recent years:-
- The swindling of retail customers by selling them largely redundant PPI (total compensation >£1bn)
- The Project Brontos tax scam, which will see the criminal trial of four executives of Barclays Italian arm starting this September. Unicredit was also involved (penalties unclear)
- The infamous tax avoidance factory led by Roger Jenkins, of which Brontos formed a part (deemed “highly abusive”, Barclays forced to pay £500m in a “clawback” settlement with HMRC)
- The £12.3bn Protium deal, a deceptive ploy designed to shift vast amounts of toxic assets off the Barclays balance sheet, which rewarded executives at shareholders’ expense (penalties unclear)
- The £7bn deal with Middle Eastern investors that was hugely detrimental to the interests of ordinary shareholders (penalties unclear)
- The betrayal of corporate customers like Del Monte (settlement to Del Monte shareholders $90 million)
- The wholesale doctoring of documentation to hide the movement of funds into the U.S. from Iran, Cuba and other prohibited countries (US settlement $298m)
- The misselling of income funds (FSA fine £7.7m) (see This is Money’s “Will no one take responsibility for Barclays’ mis-selling of high-risk investments to cautious, mainly elderly customers?“
- The ‘serious weaknesses’ in providing data on trades to the City regulator (FSA fine £2.45m)
- The industrial-scale misselling of interest rate swaps to SMEs, which is crippling tens of thousands of smaller firms across the UK.
- The commingling of customers and proprietary assets (FSA fine £1.1m)
- The abuse of IFRS to double is own profitability and massively inflate executives’ bonuses (source: PIRC)
- The systemic faking of its Libor (interbank borrowing) numbers (FSA/CFTC/DoJ fine $453 million)
(Oh and of course the accountancy firm PWC didn’t see much wrong with any of this). In most of these instances the bank has faced successful and heavy civil, regulatory or criminal action and retribution in jurisdictions including the UK and US.
As Louise Armitstead wrote in the Telegraph, Diamond spent most of the session trying to persuade the MPs that he had built a great and proud institution that had had the misfortune to be sullied by the reprehensible behaviour of a tiny minority of nasty miscreants. This version of events, similar to that adopted by the Murdochs over the phone hacking and police corruption scandals, is unlikely to wash long term. In fact it doesn’t even wash in the short term.
John Mann MP fairly stumped Diamond when he asked: “Can you remind me the three founding principles of the Quakers who founded Barclays?” As Diamond sat stoney-faced, Mann told him what they are:-
“Honesty. Integrity. Plain dealing. That’s the ethos of the bank you’ve just spent two hours telling us is doing so well – in fact so well that I wonder why you’ve not received an extra bonus rather than the sack.” [Diamond, even though he did not know the principles claims to have abided by them].
“You’re the man in charge. But you’re accepting all the good things and the bonuses [and] the people working for you are fiddling the system, potentially going to prison … give me a suggestion of how you’re going to show contrition to those staff and customers who are wondering whether to take their money out of this rotten, thieving bank?”
Had Barclays, the venerable British bank that traces its roots back to 1690, really sunk so low?
Not smiling now
Diamond deflected questions about his (alleged) £22 million payoff, saying these are a matter for the Barclays board. “I have not asked them nor has it been of interest to me in the last day or so. Since I resigned my focus was on preparing for today.”
Personally, I think he would be unwise to accept any “Golden Parachute”, given the damage which, either through incompetence or negligence, he has wrought on Barclays and the reputation of London as a financial centre. The sum is equivalent to the annual budget of the charity Shelter, and if Diamond were to take it he would probably become a pariah just like Goodwin (if it is awarded, he should give it to Shelter).
Diamond also told MPs that the bank would not obstruct any criminal investigations relating into those who had lied about Libor. “I understand there will be follow up criminal investigations (into some of the traders). That’s not up to us but we certainly not stand in the way of it.” This is refreshing and is in marked contrast to the cover up that Lloyds Banking Group is still seeking to perpetuate where the, far from victimless, criminal legacy of HBOS is concerned.
Finally, this rather shambolic session has strengthened the case for a judge-led inquiry into the banking sector (and into all associated players including Treasury, FSA, Bank of England, auditors, ratings agencies, other professional services firms, consumers, etc) as opposed to the parliamentary one favoured by David Cameron, which would inevitably turn out to be a whitewash. If you believe that we need a full Leveson-style independent public inquiry into the banking sector, you should sign one or other of these petitions (or both) which seek to persuade the government of David Cameron of the need for such an inquiry.
- A petition hosted on the Number 10 website which already has 16,000 signatures http://epetitions.direct.gov.uk/petitions/35421
- The Good Banking Forum http://action.compassonline.org.uk/page/s/good-banking—public-inquiry
Note: I have sourced some of the quotes from an article by Patrick Hosking, financial editor of The Times