27 Jun 2012

Lie-bor’ London: Duuuuude, where’s Barclays’ bonus?

In the middle of the financial crisis, when TV reporters like myself would explain the rise in Libor as a kind of thermometer of financial fear, Mervyn King cracked what now appears to be a rather informed gag. “Libor – the rate of interest at which big banks don’t lend to each other,” said the governor.

What we know now, is that Libor was a bit of an in-joke in the form of ‘Bill and Ted’s interest rate manipulation adventure’. For years the backroom staff submitting the ordinary humdrum figures into the BBA’s Libor spreadsheet were an essential but arcane backwater of Britain’s banks. Then Barclays’ highly paid derivative traders discovered that they could move Libor a fraction and thought they could make or save huge amounts of money. All that was required was gentle email persuasion of the back office Libor submitters.

‘I owe you big time’

So from 2005 Barclays’ derivatives traders asked the bank’s Libor team to change those submissions, with one email suggesting “just tell him … to put it low”. Another trader expresses their concern to the Libor team, telling them: “…dude, you’re killing us”. While another warns the wrong rate could “potentially cost a fortune…would really appreciate any help”. So the Barclays submissions desk changes its rates, responding to one request with: “Done… for you big boy”. Later, traders outside Barclays ask its dealers to lower Libor. After one successful intervention, an external trader says: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger”.

Then as the financial crisis raged, a change: separately senior management at high levels of Barclays HQ got involved. They were concerned that high interbank rates quoted by Barclays made it look like the bank was in trouble. So managers instructed their submissions desk to artificially reduce the Libor rates they were quoting. “Just set it where everyone else sets it, we do not want to be standing out,” said one Barclays Manager. Another said as the world banking crisis raged that we want to “send the message that we are not in the s**t”. The FSA says that in March 2008 Barclays provided the FSA itself with inaccurate information about the rate at which it was funding itself. Misleading the regulator seems incredible at a time when there were widespread worries about banking solvency.

Implications for personal finance

This is an extraordinary turn of events. It has ended with the largest fine ever imposed on the financial regulator. This isn’t just about high finance – it DOES have an affect in the real world. Many interest rates – from mortgages to company loans – are set as a fraction above Libor – say Libor plus three or four per cent. Savers might have effectively got lower interest rates than they should have. Libor should be an objective independent measure calculated as the average of what banks are charged to fund themselves

Instead, traders were conspiring to rig, bend and manipulate this fundamental piece of banking plumbing. As Nicholas Dunbar, author of Devil’s Derivatives told us, “the casino side of the bank contaminated the ordinary day-to-day retail bank”. There is a strong argument for the Treasury to look again at its model form ring-fencing, after the egregious experience of what you might call “Lie-bor”.

Fines – but no criminal charges

Now Barclays face a series of fines – £59m from the FSA. Its the highest ever levied, but actually discounted because Barclays cooperated with the investigation. While in the USA, it has paid a further £230m for similar abuses in America. A staggering embarrassment for Bob Diamond who ran Barclays investment bank at the time. He and top execs will now forgo a bonus for this year, but what of the traders’ historic bonuses? Can there ever have been a stronger case for a forcible repatriation of historic bonuses to named individuals than this?

There can be no criminal charges in derivatives matters, the FSA told us because of the 2001 Financial Services Act brought to us by the last government. They suspect but can’t prove direct pecuniary advantage. The verdict of US regulators seems harsher. Mr Diamond did apologise.

Some politicians argue that Mr Diamond should be fired. He will be called before Andrew Tyrie’s Treasury Select Committee. He should surely answer some valid questions of the media if he wants to ensure the trust of his millions of UK customers. And this only starts at Barclays.

All eyes on London

But there is also a wider issue. In Brussels, Frankfurt, Paris, Washington and New York, politicians and regulators are joining forces to point fingers at the unhappy coincidence in a variety of frauds, misconduct and collapses of London. Carolyn Maloney, New York Democrat congresswoman said at the JP Morgan hearings, before today: “It seems to be that every big trading disaster happens in London”. AIG, the London Whale, Lehman’s, the list goes on. Add Barclays Liebor to that too.

33 reader comments

  1. pierregonzalez says:

    Now we understand why the PM is blocking any kind of regulation of the financial sector. Because it would prevent the poor bankers to do that kind of things . And if bankers are obliged to be honests this is the end of the bankinf business.
    By the way , if you and me do that kind of things we go to jail . But bankers don’t.

  2. Kate says:

    Excellent piece again tonight on Ch4 News, Faisal. Thank you.

    How can Bob Diamond keep his job? Indeed why has he (and the other Bollinger popping corrupt banking elite)not been arrested? Any of Joe Public would be locked away for years but yet again we will see that there’s one rule for us and *an other for them.Fat cats with ugly behaviour.

    * the rule for them,having been made up by them, is simple – there is no rule.

  3. Philip says:

    And it’s this corrupt swamp that Cameron wished to protect when he vetoed the EU proposals last year! He’d rather punish the jobless/disabled people/the poor.

  4. Anthony Martin says:

    And the catalogue of fraudulent acts just grows bigger and bigger, while the scum continue to get away with it time and again. Welcome the Britain!
    It’s sad that the general public can rely only on some twists of fate or, infighting among these vile greedy scum, to bring about a temporary ’embarrassment’ that has the colossal affect of invoking an ‘apology’!
    If this was 1850, these vermin would be dealt with like they deserve…from the Gallows.
    British Banks + British Gov cronies + connections to wealthy vermin + media & Law control = Worst people on the planet.

  5. ukdeadduck says:

    What now for SVR?

  6. Sam says:

    Amazing what the banks can get away with! Sad to say, one of my distance relations worked in Lehman’s – when they fell, he fell too, but now works for Nomura Holdings with a higher pay-pack of over £100K + those million bonuses. No wonder they are destroying the country. Now we know they really are as there’s just lies, lies & more lies. As another example,I was mis-sold a remortgage deliberately by HSBC – only later when I threatened FSA/watchdog/bbc action that they reversed, & compensated me a mere £1428. What a cheek?! I now have learnt 100’s of people being wrongly sold remortgages/mortgages by leading HS banks – & most of these customers do not even know about it – & even when they do, they are lied onto & hood-winked into thinking they are wrong & the bank is right

  7. Steve Willis says:

    I’ve always considered the way in which LIBOR is set to have parallels with the operation of a cartel.

    You can just imagine a group of drugs barons going into the room, all chucking in a suggestion for the price of cocaine, agreeing it and imposing across the world.

    I wonder if, even though the 2001 Financial Services Act appears to prevent criminal prosecutions in the UK, an investor or citizen based in Europe could seek a European Arrest Warrant for a trial under their own national laws?

    1. pierregonzalez says:

      Yes they could . Furthermore the Americans who are a bit more serious about that kind of behaviour might start a criminal case!

  8. Thornbird 11 says:

    There are two common links in what normal people would regard as the catalogue of criminal conspiricies, but which are apparently above the law due to the 2001 act.
    One is that they happen within institutions that are deeply involved in the City of London financial markets.
    The other is that they invariably involve traders and the elements of those institutions that deal in financial derivatives.
    This scandal has been going on since at least 2007.
    What else is out there.
    Is the ongoing crisis at RBS, Nat West and Ulster Bank a part of it?

    When are business and finance correspondents going to earn their money, or will they remain firmly in the pockets of the houses that are causing such carnage.

  9. Yorkshireman says:

    What has happened to Barclay’s Quaker roots of honest and upright behaviour?

  10. Mark Hammer says:

    Dear Channel 4 News Team,

    Please do not let these criminals (the bankers) get away with murder.
    Investigate the matter, dig deeper and deeper and expose these thugs for what they are, parasites.

    You are the only ones that can save us since clearly the politicians who should regulate the banks, are doing nothing.

    Everyday we hear “How the Markets will react” to whatever our elected politicians have legislated about.

    In other words, it seems like “The Markets” are ruling the world, not the people through their elected Parliament.

    So who are the people behind the phrase “The Markets”, well its Bob Diamond and his croonies, looking out for number One, while leaving a financial wasteland behind them.

    At the moment, the UK is no better than a South American or African banana state, where a handful of super rich cash in for them selves, with total disrespect for the rest of the population.
    And since they are in power, there is nothing the people can do about it.

    Members of the Free Press: PLEASE HELP

  11. Philip Edwards says:

    Faisal,

    Sometimes I don’t know whether to laugh or cry at your wide-eyed “innocence.”

    So now you have apparently stumbled on the fact that capitalist markets are rigged. Oo-er, missus.

    So let’s assume this “rogue trading” is “corrected.” Do you REALLY think it’s going to make one scrap of difference to the bottom line – that capitalism is rotten and corrupt to the core, always has been and always will be? Seriously, have the writings of J.K.Galbraith (and he was an American liberal for chrissakes!) left NO impression on you?

    My guess is that all this evil will simply be rationalised into even more MBA/Business School bull*. The system will be restored in a different form with the same affects. There will be no fair distribution of wealth. There will be further privatisation (read: robbery) of public assets. Health, education, housing and welfare (what’s left of it) finance will be concentrated in even fewer hands. Right wing politicians (i.e. all of them) will continue to lie through their teeth. Poverty will increase. Capitalist wars will repeat.

    But will the scales fall from Faisal Islam’s eyes?

    1. David Robson says:

      So we do nothing then?

  12. Danny Kirk says:

    I am beginning to think David Icke was right all along.

    1. Coward says:

      He is. Its just these mainstream media puppets report everything in such a wish washy way. . . oh blairs a war criminal. . and the bankers are pillaging trillions.. and in other news..

    2. David Robson says:

      He is absolutely right. Read some of his stuff.

  13. citizen smith says:

    I’ve just posted on Jon’s blog so dont want to waste space here……The bottom line is Jon should get a ‘coalition’ of investigative journalists to get to the botom of this whole corrupt business. Taxpayers want transparency and accountability…NOW.

  14. Andrew Dundas says:

    Very many US mortgage rates are indexed to the Libor dollar rate. Not many people in the UK track those $ rates, but US mortgagees do.
    Those Libor rates are shown on the Bloomberg TV crawlers and, we now know, came from lying London dealers.
    I wonder whether those fraudulent notices also deceived US markets? If they did, as seems likely, UK Bankers might be extradited to the US where the prosecution of fraudsters is more severe.
    Let’s all sing together: “We’ll turn Manhattan into an isle of joy”.

  15. citizen smith says:

    Cameron has just said that Barclays should look at what has been going on….. WRONG ANSWER……..CAMERON IS WRONG…. its not up to Barclays…. it was in the hands of FSA but it has no teeth. IT SHOULD NOW BE WITH THE PM….

    CAMERON must act NOW….
    1. process and audit controls NOW for all banks
    2. minimum ‘10% of profit’ fines
    3. sack all transgressors NOW & in future

    If banks are rigging LIBOR then they r falsifying accounts…illegal?

    ‘Stress testing’ is a farce.

    JFDI.

  16. Kate says:

    #Philip Edwards

    What are you getting at Faisal for?
    A lack of jaded cynicism?
    How refreshing!

  17. Y.S. says:

    The Government are not in charge of the city, the bankers are going to destroy us.
    They will do anything for a bigger bonus. Get back to salery only.

  18. JM says:

    Ordinary Jane or Joe steals a T-shirt in a riot gets locked up. Rich banker commit massive fraud and illegality and…gets a stupendous bonus, while his bank gets a (more or less trivial) fine. Glad to see we’ve all got our priorities straight.

  19. Democorruptcy says:

    Faisal,
    Can you mention something about their Protium deal?

  20. Alan Rodgers says:

    Faisal
    As someone who is deeply suspicious of the competence of the FSA, Northern Rock fast asleep, World banking crash missed that one etc.

    Can you explain why they did not bring criminal charges against Barclays, the spin seems to be that they are unable to do so because it relates to the Derivatives Markets, why does fixing LIBOR relate solely to the derivtives market.

    The FSA spokeswoman explained to Jon Snow that they do have the power to bring criminal charges but decided not to do so due to the cooperation received from Barclays, how cosy.

    When asked on Radio 4 if the FSA had the power to seize computer hard drives from Barclays the FSA spokeswoman explained tat they do. However it seems this wasn’t considered necessary either due to the cooperation received from Barclays, how very cosy.

    Finally, who told the FSA that this fraud was going on as they are incapable of detecting it themselves. A hint from the very busy spokeswoman was that they sort of detected unusual movement in LIBOR and also received email and phone information. It was later stated that detecting unusual movements in the LIBOR rates was very difficult.

  21. Accountability now says:

    Bob Diamond has moaned about banker bashing, but he was in charge of the investment bankling excreta before he became the chief snout in the trough of salary and undeserved bonuses. So how would anyone accept his apology or pretensions to honesty? I hope the USA imprison him, because all he will get from our lot, is more lauding and money. As others on here have written, no law for the bankers, but watch out little man in the street.

  22. Alan Rodgers says:

    There has been a lot of critism and anger at the banking sector. Thankfully Eddie George(the Gov) has acknowledged this and after Northern Rock (7 years), RBS (5 years), Global Recession (4 years), mis-selling endowments and PPI (? years), LIBOR (3 years) he has now made it clear that the banks should improve their behaviour. For such insight, decisive action and ruthless retribution we should be truly grateful.
    Well done Eddie!

    1. Andrew Dundas says:

      Interesting observations!
      There was no financial regulator at all prior to 1997. When the FSA was introduced against strong parliamentary complaint from the then Opposition and from media that both now claim FSA was not ‘tough enough’, it was a radical change.
      The FSA spent a great deal of energy on clearing up the mess left by the mis-selling of pensions, and then the mess of life assurance linked mortgages. Millions had been mislead.
      Generally speaking political change follows crises. Changes without crises are usually met with cries of: “if it ain’t broke, why fix it!” So we’ve only ourselves to blame…
      One other point. Eddie George died a few years ago, and after a long and well-deserved retirement. The current Governor is Mervyn King: he is a former (excellent) Professor of Economics and co-writer with John Kay of several books on practical economic conundrums. Merve-the-swerve is expected to retire shortly and after long and distinguished service on the MPC and as Governor.

  23. fred says:

    hope criminal charges are made hope dimond goes on trial in America// 200 years should cover it.

  24. Kate says:

    Incredible that headlines are screaming “Diamond under pressure to step down”.

    WHY is he given the option?

    Joe Public certainly wouldn’t.

  25. adil says:

    Surely we are all to blame? The metrics of success need to change. A bank (esp an _investment_ bank) should not be measured on the amount of money it made last year. That results in what we have now – short cuts and dangerous deals that undermine long-term sustainability in favour of short term profit. The metrics need to be based on the long-term and on ethics (improving companies invested in etc).
    Many of us are indirectly or directly stakeholders in these bingo houses and we should hold them to account. We should not be asking for large increases in our pension funds, but whether our investment funds have improved businesses and been ethical. Perhaps, it might be a useful idea to have some moral/ethical elements to the banking boards (dare I say elements of the different religious groups).

    I cannot help think that we get what we deserve to some degree. If we are interested in seeing our money grow in leaps and bounds we should not be surprised by the unscrupulous acts of those we entrust with our money. It will be interesting to see when the spotlight turns on the buy-to-let market (which appears to be encouraging slum landlords).

    But, what do I know.

  26. Alex Berka says:

    I recall that there was some surprise that UK banks after the crash of 2008 would not lend money to each other at the Libor rates. Was it because they all knew they were lying to each other? The mendacity and greed exhibited by the banking sector, not only caused the great crash of 2008, but prolonged the recession.

  27. Andrew Dundas says:

    Ministers continue to blame the previous government. However:
    Prior to 1997, there was neither any FSA nor any equivalent. No regulation or over-sight of any sort.
    Consequently there was monumental mis-selling and mis-reporting of both personal pensions and pension funds. Millions lost money. Banks collapsed leaving depositors and employees high and dry: BICC & County Bank to name but two. Millions lost out when Tories were in power. John Major mocked those ‘losers’.
    The most wicked were the false promotion of life assurance linked mortgages by both the Media and Finance business. The media craved their Advertising monies, and encouraged their personal finance scribblers to support those frauds. Millions lost out.
    Moreover, the Equitable Life scam was conceived under the Tory Government and promoted on the telly and in the newspapers to the millions of gullible consumers who thought it was government scrutinised: E Life was not!
    HM Opposition (ie, the Tories) roared their full support of Bankers and their rejection of any UK or EU regulation and control of finance. They have no one to blame but themselves.
    The media are equally to blame. NEVER trust the…

  28. Democorruptcy says:

    All this talk about a lack of regulation as if we have some now!!

    The FSA have just allowed banks to lend out their capital buffers!! Osborne has locked the FPC in cage changing their remit from financial stability to helping the economy i.e. they cannot block reckless lending!! Is “Funding for lending” banks lending for bonuses and taxpayers picking up the losses sgain?

Comments are closed.