Peter Tchir on the LIBOR scandal, FSA and Barclays.
Here is the FSA’s report from June 27th.
I will admit when I first looked at it, it seemed pretty damning. The dialogue was awful and the charts looked bad. But as I look through the details I have to say, Barclay’s seems incompetent in its own defense. I owe some of this report to Simone Foxman who looked at one of the trades in some detail, but here is a closer look at some of the accusations in the report and what impact it had.
My assessment so far is that Barclay’s was incompetent at moving LIBOR and was incompetent at defending itself against the FSA. I expect that the financial crisis period will be a lot more interesting as there is some real divergence and the potential influence on LIBOR is big and real.
Lost Reputation with Little Accomplished is what analysis of FSA examples demonstrates
58. Barclays’ Derivative Traders would request high or low submissions regularly in emails, for example on 7 February 2006, Trader C (a US dollar Derivatives Trader) requested a “High 1m and high 3m if poss please. Have v. large 3m coming up for the next 10 days or so”. Trader C also expressed his preference that Barclays would be “kicked out” of the average calculation. Trader C’s aim was therefore that Barclays’ submissions would be high enough to be excluded from the final average calculation, which could have affected the final benchmark rate.
With the markets going into low volume summer vacations trading mode, why not spend a few minutes reviewing Diamond’s testimony.
Q263 Mr McFadden: The point that I am making is about how significant the phone call is given the pattern detailed in paragraph after paragraph of the FSA report, which says that you had been consistently lowballing your submissions in the year running up to the phone call.
Bob Diamond: There are two answers to that. First, the behaviour of the people who were influencing the lower submissions is wrong, and we were clear on that from the beginning. To answer that in another way, what was the importance to me of the call from Paul-not the note, but the call? The call from Paul was alerting me that there was concern in Whitehall about why Barclays rates were high. It was important to me to get to John Varley, whom my note was to, so that he could get in touch with Whitehall and make sure that there wasn’t a misunderstanding that Barclays was high or whether other people were posting rates that made us appear to be high and that there wasn’t a function of not being able to get funded. The importance of the call 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 more than it meant or something different than it meant.
Q264 John Mann: Before I ask my questions, I just wonder, Mr Diamond, if you could remind me of the three founding principles of the Quakers who set up Barclays?
Bob Diamond: I can’t, sir.
Q265 John Mann: I can help, and I could offer to tattoo them on your knuckles if you want, because they are honesty, integrity and plain dealing. That is the ethos of this bank that you have spent two hours telling us is doing so well-in fact, from what you have told us, doing so well that I wondered why you had not received an extra bonus rather than the sack.
With Diamond’s testimony in the LIBOR scandal, it is always worth reading some of Jessie’s thoughts on the matter.
After the hearing, Conservative MP David Ruffley, a member of the Treasury Committee, said he was not satisfied with Mr Diamond’s evidence.
“Either he was complicit or, frankly, incompetent,” Mr Ruffley told the BBC.
He said he was astonished that Mr Diamond said he only became aware of the rate-rigging at Barclays last month.
“It was quite shocking testimony, in the sense that there was serious wrongdoing and he didn’t know about it,” the MP said. “Heaven knows what else was going on inside the bank.” BBC
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”
John Dalberg Lord Acton