Diamond Apologizes For ‘Reprehensible’ Barclays Libor Behavior

“Clearly there were mistakes,” Diamond, 60, said in testimony before Parliament’s Treasury Select Committee in London today. “Clearly there was behavior that was reprehensible.”

Diamond said the backlash that has led to the resignations of senior managers and erased $5 billion from the London-based bank’s market value is a consequence of the lender being the first sanctioned for rigging interest rates.Barclays, the U.K.’s second-largest bank by assets, was fined a record 290 million pounds ($453.4 million) on June 25 for rigging the London interbank offered rate. Lawmakers are trying to determine what Diamond knew about disclosures last week that Barclays tried to manipulate the benchmark for profit and to mask its difficulty borrowing money during the credit crisis.

“There has been an unfortunate series of events in the last week in the fact that Barclays was identified as the first bank,” Diamond said. It became “clear to me” by July 2 that he had lost the support of regulators to remain CEO, he said.

‘Physically Ill’

The conduct was limited to 14 traders within a bank that employs about 2,000 traders, Diamond said. Regulators released e-mails from those traders a week ago describing their actions. The behavior has been dealt with and “eradicated,” he said.

“When I read the e-mails from those traders, I got physically ill,” he said.

Barclays has defended itself by detailing its attempts to warn regulators about competitors’ misconduct and by providing documents suggesting the U.K. government pressed it to lower its Libor submissions during the 2008 financial crisis.

The settlements with the U.K. Financial Services Authority, the U.S. Commodity Futures Trading Commission and the U.S. Justice Department resolved claims going back to 2005 that Barclays derivatives traders requested false Libor submissions to benefit swap and futures positions tied to the rate.

The regulators also said senior Barclays managers told staff to submit artificially low rates from August 2007 until 2009.

The Barclays accord was the first in an investigation by regulators around the globe that has ensnared at least 12 banks, including Citigroup Inc. (C)HSBC Holdings Plc (HSBA)UBS AG (UBSN), Credit Suisse Group AG and Royal Bank of Scotland Group Plc. (RBS)

Learned This Month

In addition to Diamond, the Libor scandal has triggered the resignations of Barclays Chairman Marcus Agius, 65, and Chief Operating Officer Jerry Del Missier, 50.

Libor is calculated by a survey of banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies. Because submissions aren’t based on real trades, the potential exists for the benchmark to be manipulated by traders seeking to profit from where the rate is set.

Diamond, in his testimony today, said he didn’t learn that Barclays’s Libor setters submitted artificially low rates during the financial crisis until “this month.” The fines were announced last week, at the end of June.

Barclays released a statement yesterday before the hearing that said it “repeatedly raised concerns” with regulators over “an extended period” about how banks were lowering their Libor quotes in 2007 amid investor concern about the health of lenders and in 2008 after the failure of Lehman Brothers Holdings Inc.

Differentiating Conduct

Barclays also tried to differentiate the submission of low rates during the financial crisis from the conduct of its swaps traders, which the bank called “an attempt to manipulate ultimate reference rates.” Many of the traders who tried to rig Libor no longer work at Barclays and “certain” traders who remain employed at the bank have had their bonuses withheld, according to the statement.

Barclays said it has conducted an “exhaustive” internal investigation over three years that cost almost 100 million pounds. The bank reviewed 22 million documents, listened to one million audio files and conducted more than 75 interviews, the statement said. The results of the probe were shared with regulators, who then conducted additional interviews and made their own requests for documents, Barclays said.

Barclays also released notes the bank said were written by Diamond following an Oct. 29, 2008 phone conversation he had with Paul Tucker, now deputy governor of the Bank of England.

Tucker Call

Tucker called Diamond to inform the banker that “senior” Whitehall officials had asked why Barclays’ Libor submissions were always at the “top end.” Diamond asked Tucker to tell the officials that not all banks were providing quotes that represented the true level at which they could borrow money.

Tucker told Diamond that Barclays’s submissions didn’t always need to be as high as they had been recently, according to Diamond’s note.

The conversation between Diamond and Tucker was passed on to Del Missier, who misinterpreted it as the government granting Barclays permission to offer lower quotes, according to Barclays.

Diamond, in his testimony, said he doesn’t believe government officials wanted Barclays to “fiddle” with its Libor submissions. Diamond added that at the time he and Tucker discussed Libor there was a concern that the market might conclude Barclays needed to be nationalized by the government. Barclays had no difficulty accessing funding, he said.

Trader E-Mails

Tucker today made a request to appear before Parliament “as soon as possible” to give evidence on Libor, according to a statement released by the Bank of England.

On Sept 13, 2006, a Barclays trader in New York e-mailed the person who submitted the rate, “Hi Guys, We got a big position in 3m libor for the next 3 days. Can we please keep the lib or fixing at 5.39 for the next few days. It would really help,” according to the bank’s CFTC settlement.

In another exchange, from April 7, 2006, a submitter responded to a request for low U.S. dollar Libor submissions from a swaps trader with “Done … for you big boy,” the CFTC said.

Those emails do “not represent the Barclays that I know and I love,” Diamond said.

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