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Diamond admits traders’ behavior “reprehensible”

Barclays bank former Chief Executive Bob Diamond arrives at Portcullis House to attend a Treasury select committee hearing in Westminster, London July 4, 2012. REUTERS/Luke MacGregor

(Reuters) – The chastened former head of Barclays apologized for the “reprehensible” behavior of his traders who fixed interest rates, but told British lawmakers on Wednesday his bank had been unfairly singled out after coming forward to admit wrongdoing.

Barclays bank former Chief Executive Bob Diamond arrives at Portcullis House to attend a Treasury select committee hearing in Westminster, London July 4, 2012. REUTERS/Luke MacGregor

Bob Diamond, 60, quit this week after Barclays agreed to pay nearly half a billion dollars in fines for manipulating the interest rates at the heart of the global financial system.

British politicians have seized on the case as a symbol of a culture of greed that has poisoned the entire financial industry. Newspapers have highlighted e-mails disclosed in the case which show traders congratulating each other for fiddling figures with promises of bottles of champagne.

Appearing thoughtful and humble before an often hostile parliamentary committee, the man who until Tuesday was one of the world’s highest paid and most powerful financial executives with an aggressive reputation acknowledged “inexcusable” behavior among his group’s traders.

“When I read the e-mails from those traders, I got physically ill,” Diamond said. “That behavior was reprehensible, it was wrong. I am sorry, I am disappointed and I am also angry.”

He said those involved in rigging interest rates would be subject to criminal investigation and should be “dealt with harshly”.

The wrongdoing at the 300-year-old bank was “not representative of the firm that I love so much”, the American banker said, appearing on his nation’s Independence Day. But he insisted that Barclays was being made a scapegoat because it had cooperated with the authorities to help unearth the misdeeds.

“This week the focus has been on Barclays because they were the first,” Diamond said, describing years of cooperation with regulatory agencies to uncover the practice.

“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 decision by Britain’s third-biggest bank to cooperate with regulators may have been designed to limit damage but it appeared to have backfired, hurting Barclays’ reputation and costing Diamond his job, banking analysts said. It may also discourage other banks from cooperating with regulators.

The case has reopened a debate in Britain on whether big banks should be split into retail and investments units, while also raising questions about the morality of bankers’ salaries and bonuses and whether banks should be more closely regulated.

STONEY-FACED

Diamond testified for nearly three hours, during which time the Barclays share price was volatile before closing at 164.6 pence, almost exactly where it was when he started speaking.

In the committee room, he was accompanied by half a dozen Barclays staff but ignored them, not seeking any guidance.

He sipped water continuously from a plastic cup, especially when questions became more uncomfortable, downing so much he had to be given a new bottle.

The committee remained stoney-faced throughout, with their skepticism, frustration and open disdain at his answers becoming more and more apparent.

A composed Diamond also pointedly referred to each committee member by their first name, even in the face of hostile questioning with one MP calling Barclays a “rotten, thieving bank” and saying Diamond was either complicit in wrongdoing or “grossly incompetent”.

Afterwards, Andrea Leadsom, a Conservative committee member, said Diamond had often just repeated rehearsed lines. “It was so frustrating sitting there for three hours and not getting anywhere, it was really frustrating,” she said.

Andrew Tyrie, chairman of the committee, was equally critical: “Bob Diamond gave a number of what I thought were, at least cumulatively, somewhat implausible replies,” he told Sky News.

“My general impression was that it was not the kind of gun fight at the O.K. Corral that we had anticipated before the event,” said Richard Reid of the International Centre for Financial Regulation, a think tank. “No real smoking gun was found.”

Of his own decision to step down, a day after saying he wouldn’t, Diamond said he had realized that he had become a lightning rod for criticism. “The focus of intensity was my leadership. It was better for me to step down.”

Barclays has acknowledged that its traders colluded with others to manipulate the London Interbank Offered Rate, or Libor, the rate that big banks say they borrow from each other which underpins trillions of dollars in global contracts.

In addition to the manipulation by traders, which took place from 2005-2009, Barclays also has admitted it deliberately understated its submissions of Libor rates at the height of the 2008 financial crisis to make its balance sheet look stronger.

Lawmakers questioned Diamond over a 2008 memo, in which he appeared to suggest that the Bank of England or the government might be giving the firm the nod to report that it was able to borrow money at lower rates to make it look better.

At the time, Barclays was reporting Libor funding costs that were among the highest of the large banks, even though others were in much worse shape.

Diamond wrote in the memo that the Deputy Governor of the Bank of England, Paul Tucker, told him “it did not always need to be the case that we appeared as high as we have recently”.

Barclays has said that another senior executive – Chief Operating Officer Jerry del Missier, who also resigned on Tuesday – understood the memo as a green light to submit lower rates. Del Missier was not immediately available for comment.

“HEADS UP”

Diamond said he interpreted Tucker’s call as a “heads up” that politicians were worried about the rates Barclays was reporting, but not as a green light to fiddle them.

Diamond feared at the time that if the British government believed Barclays’ costs were higher than those of other banks, it might have nationalized it, as it did with several competitors, he said.

“They might say to themselves, ‘My goodness, they can’t fund. We need to nationalize them.'”

The Bank of England said Tucker intended to present his own explanation of the phone call to lawmakers at a later hearing.

Britain’s finance minister, George Osborne, said the government of the previous prime minister, Gordon Brown, had some questions to answer.

“They were clearly involved and we just haven’t heard the full facts, I don’t think, of who knew what when,” Osborne said in an interview with the Spectator, a right-leaning political weekly.

Shareholders, meanwhile, also want answers.

“What was the nature of the manipulation? Who was involved, how long were they involved for? Was it escalated? If it was escalated, who was it escalated to?” asked Dominic Rossi at Fidelity Worldwide Investment, a top 10 Barclays investor.

“What did the people who it was escalated to actually do? Who did they inform? Did they inform the regulator? Did they inform the Bank of England? If they did, who within the Bank of England? Who within the FSA (regulator)? These are all the questions that we need to establish.”

The bank said in documents released ahead of Diamond’s appearance that it was “ironic” that there had been such an intense focus on it alone, as it had been lauded by regulators for its “exceptional level of cooperation” over the Libor probe.

But some investors accuse the bank of missing the “big picture”.

“The board should now proactively break the bank up into its constituent parts after putting in place a coherent bonus and remuneration clawback of all misdemeanors of the last decade, from Libor to mis-selling of mortgage protection and interest rates swaps,” said Neil Dwane, CIO Europe, Allianz Global Investors, which owns 13.4 million Barclays shares via its RCM unit.

“Break it up because it trades at half book value.”

Libor is compiled by Thomson Reuters on behalf of the British Bankers’ Association from estimates supplied by the world’s biggest banks of the amount they believe other banks will charge them for loans.

“Thomson Reuters supports any measures that create a more robust LIBOR for the benefit of the market and is actively supporting the ongoing reviews,” a spokeswoman said.

(Additional reporting by Steve Slater, Sinead Cruise, Raji Menon, Kirstin Ridley, Chris Vellacott, Mike Holden and Tim Castle; Writing by Peter Graff; Editing by Will Waterman and Giles Elgood)

 

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