Lansons Conversations

A symbol of gambling and greed

The resignation of Bob Diamond yesterday marks an unusual victory this week for the political class. Wholly punished by the electorate for their collective failures in the run up to the worst economic crisis of recent decades, politicians were desperate and unanimous in their criticism of Vince Cable’s ‘moral quagmire of almost biblical proportions’. They hauled the Barclays team before the Treasury Select Committee for a potential battering, the Prime Minister David Cameron announced a joint committee of both Houses to investigate the culture of British banking and stated that it would assess whether existing criminal and civil sanctions work as deterrents. Diamond had been described by Lord Mandelson as the “unacceptable face of banking”. He announced last week that he wouldn’t take a bonus in light of Libor; then they announced a root and branch internal review at Barclays, then the resignation of Marcus Agius, Barclays Chairman, intended to take the heat out. Yesterday it wasn’t enough. This could be the moment that politicians have been seen to act and may receive some degree of belated, grudging assent from voters. But in fact politicians are scrapping about the ins and outs of the measures proposed by the Prime Minister. Despite Andrew Tyrie MP, the Chairman of the Treasury Select Committee’s and expected Chairman of the joint committee’s misgivings about the inquiry, stating that it must not be partisan, Labour’s shadow Business Secretary Chuka Umunna says the public will not accept a political inquiry into banking. George Osborne has come out and urged Labour to “see sense” and drop its demands for a judge-led inquiry into the scandal. Ed Miliband, the Labour leader in a speech to the Fabian Society on Saturday attacked the government’s failure to launch a public inquiry. “I have news for David Cameron: the people want a moment of reckoning for our banks,” he said. “The British people will not tolerate the establishment closing ranks, saying we don’t need an inquiry. They want a light shone into every dark corner of our banking system. They want bankers held to account.” The House of Lords yesterday considered a Labour amendment to the Financial Services Bill, suggesting the banking probe should be independent of Parliament. The former chairman of the Treasury Committee, Labour’s Lord McFall, said he was “amazed” that his party had not been consulted on the inquiry, saying “If you are going to set up a joint committee of parliament, first of all you have got to consult people.” But though the news is all about Bob Diamond going it is time to re-set the clock. He isn’t going to go without having his say. Bob Diamond is expected to at least raise questions about Paul Tucker, Deputy Governor of the Bank of England over Libor and the Diamond memo of October 2008. He will also go for the politicians (‘senior Whitehall figures’) ensuring that they can’t get away with it with their hands clean. Still more, there is ample evidence being cited by the Daily Telegraph yesterday that Mervyn King of the Bank of England and Adair Turner of the FSA applied pressure on Diamond to go. Every newspaper, and even Mr Diamonds resignation statement, referred to his ‘anger’. Robert Peston, the well-connected BBC Business Editor, said Mr Diamond was said to feel he had been “hounded out” by politicians. MPs and Barclays will however be united in wanting to get to the bottom of what the FSA and the Bank of England knew in 2007 and 2008. But sight should not be lost of the devastating impact on the banking sector. Barclays’s are only the first bank to settle early having co-operated fully with the FSA and qualified for a thirty per cent discount. The price is colossal for Barclays reputation now but more importantly for the entire banking sector as the story drips out. To remind us; Barclays misconduct included:
  • Making submissions which took into account requests from Barclays interest rate derivatives traders. These traders were motivated by profit and sought to benefit Barclay’s trading positions.
  • The Financial Services Authority (FSA) said traders from the bank lied about what it was costing it to borrow. This in turn influenced Libor, which is the rate banks use to lend to each other.
  • Barclays staff filed misleading figures for borrowings that they had made from other banks. Between 2005 and 2008 they tried to influence the rate to boost their profits.
  • Evidence of this includes emails between traders and rate submitters at the bank, with traders urging the latter to change the rate. “Done for you big boy.” records one transaction. “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger” records another.
  • The bank, according to Mr Diamond, fell short of its ‘culture and values’.”The events which gave rise to today’s resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business.”
The resignations from Barclays keep coming. “As Chief Executive (Diamond) he has led the bank superbly” said Marcus Agius, his temporary replacement. Jerry Del Missier has announced his own resignation as chief operating officer. “Jerry played a pivotal role in many of Barclays standout successes during the last 15 years” said Agius. Already EasyJet founder Sir Stelios Haji Ioannou has called for Mike Rake’s departure as Deputy Chairman suggesting that as Barclays’s senior independent director, for the last few years he too should resign. Before then, however, Agius and Diamond must face the Select Committee  today (Wednesday) and Thursday. Barclays are likely to face questions from the British Bankers Association. It was in their auspices Libor is set. One senior Barclays treasury manager called the BBA and warned them that Libor rates were not accurate, but that Barclays was not the worst offender. “We’re clean, but we’re dirty clean, rather than clean-clean,” he said. “No-one’s clean-clean,” the BBA representative responded. The British Bankers’ Association is ‘shocked by the report about LIBOR. The banks which contribute to the LIBOR rate must meet the necessary obligations to their regulators. The BBA has proactively co-operated with the authorities at every stage and will continue to work with the regulatory investigations into LIBOR, submitting information and making staff available for interview.’ George Osborne is going to come under pressure to take action on the Vickers report which recommends splitting “casino-style investment banking” and retail banking on the high street. He has bought time in the form of the parliamentary inquiry.  The Financial Services Bill is also ripe for further delay given this week’s developments. The onslaught from politicians demanding action. has been deafening: Andrew Tyrie MP, Conservative Chairman of the Treasury Select Committee “This is the most damaging scam I can recall. The reputation of Britain’s financial services industry has been severely tarnished…the public’s trust in banks has been even further eroded. Restoring the reputational damage must begin immediately. Parliament and the public need to know what went wrong and whether the perpetrators have been rooted out. We also need to be given confidence that this has been put right.” Alistair Darling MP, Labour, former Chancellor of the Exchequer “The situation is symptomatic of a culture that prevailed for much of the last decade, when, frankly, anything was allowed to go”. Lord Oakeshott, former Lib Dem Treasury spokesman “He is the symbol of the gambling and greed we must root out of our banking system. Now the top priority is to catch the criminals, break off the casinos from the basic banks and make them lend. We must never again let the rich and powerful in the City or the media get their hands round the windpipe of Government”. For Simon Lenham, Chief Executive of London Capital Group it is: “Politicians, once again, show that they will do anything to jump on a vote winning band wagon and what better way than the ‘ever popular’ bash a banker.” Aside from the select committee investigation this afternoon media and political attention is going to be on the following:
  • The head of financial conduct at the FSA is to review the Libor exchange rate, led by Martin Wheatley, considering the need for greater transparency.
  • All available legal options being pursued to punish those who broke the Libor rate.
  • Political and parliamentary and party conference pressure ahead of completion of the joint committees’ consideration of its report on British banking right up Christmas. Its recommendations will be contained in the forthcoming Banking Reform Bill.
Lansons Public Affairs July 2012