Exec says Barclays not alone in scandal

Former Barclays chief executive Bob Diamond gives evidence

Former Barclays chief executive Bob Diamond gives evidence Wednesdy to the Treasury Select Committee during a hearing in London. (July 4, 2012) (Credit: AP)

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LONDON -- The former boss of Barclays said Wednesday that his bank illegally reported low borrowing rates in October 2008 because other banks were reporting even lower ones, making Barclays look bad and threatening efforts to attract investment from Qatar.

Banks borrow from each other daily and report the rate they paid for the borrowing. Those reports are compiled into a benchmark interest rate used to price the rates charged on mortgages to business loans worldwide.

If a bank pays a higher interest rate than its peers to borrow money, that can indicate it is having financial trouble. U.S. and British authorities fined Barclays $453 million for submitting lower than borrowing rates.

Bob Diamond, who resigned as chief executive on Tuesday, told a parliamentary committee there was fear that the government would be alarmed by Barclays' borrowing rates and would conclude that the bank was in trouble. He insisted Barclays had been reporting accurate rates through most of October.

Barclays was able to raise additional capital, and got through the credit crisis without a government bailout.

"We were desperate. We had [$10.5 billion] in equity being raised, and if rumors got into the market that we couldn't fund, maybe we couldn't complete the equity raising," Diamond told the House of Commons Treasury Committee.

Diamond stepped down as chief executive this week, as did the chairman and chief operating officer.

On Oct. 29, 2008, Diamond had a conversation with Paul Tucker, deputy governor of the Bank of England, in which Diamond raised concerns that other banks were reporting false lower rates.

A note recorded by Diamond, which has been submitted to the committee, said Tucker initiated the call as senior government officials were wondering why Barclays was reporting higher borrowing rates.

"I asked if he could relay the reality, that not all banks were providing quotes at the levels that represented real transaction," Diamond recorded. "His response [was] 'Oh, that would be worse.'"

Diamond's note added that Tucker told him "that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently."

Barclays insists that Diamond did not take this to be an order from Tucker. However, it says a subordinate, Jerry del Missier, mistakenly thought the central bank had ordered Barclays to report lower rates and passed the instruction on.

The Bank of England said Wednesday that Tucker was "quite keen" to testify to the committee to give his version of the conversation.

Diamond told the committee that even after del Missier's instruction, Barclays was still reporting higher rates from most other banks and had no influence on the final LIBOR calculation, which excludes reports at the extreme high and lower ends.

Diamond told the committee that there were also concerns in October 2008 on how the government might react to the bank's relatively higher rates.

"They might say to themselves, 'My goodness, they can't fund. We need to nationalize them,' as they had nationalized other British banks," Diamond said.

Diamond appeared tense and wary as he parried questions from the committee.

The Bank of England has denied knowing of any impropriety in setting the London interbank offered rate, or LIBOR.

Barclays has said it had no intention of manipulating LIBOR in 2008, though some of its traders -- Diamond said there were 14 -- had done so to protect their own positions starting in 2005.

Barclays chairman Marcus Agius and del Missier also resigned this week over the scandal. Del Missier, formerly a top executive at Barclays Capital in Manhattan, was identified as the subordinate who gave an order to report lower rates.

Pressure had been building on the bank over the past week since U.S. and British regulators imposed fines totaling $453 million against Barclays for false reporting of its borrowing costs between 2005 and 2009.

Those reports, along with those of other banks, feed into the daily calculation of LIBOR. LIBOR helps price some $500 trillion in financial assets globally, including mortgages and business loans.

Barclays has said it suspected that other British banks were reporting lower than accurate borrowing rates at the height of the credit crisis. Barclays has said its higher reports generated rumors that it was in trouble.

The release of Diamond's memo has also piled the pressure on the Bank of England, raising questions about whether the central bank was aware of reports that banks were giving false readings of borrowing costs and, if so, why it apparently did nothing about it.

Paul Myners, a Treasury minister in the previous Labour government, said Wednesday that the Bank of England probably would have a recording or a formal minute of Tucker's conversation with Diamond.

"We will find the answer to this quite quickly," he told BBC radio.

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