Political Pressure on Barclays as London Becomes Scandal Center

Bikram Pandey
03 Jul, 2012
New York City

UK politicians stepped up heat on Barclays after the global bank encouraged rate setting for the London interbak offered rate or Libor. More resignations are likely after Robert Diamond Jr resigned as politicians and regulators target culture of recklessness and outsize greed.

Robert E. Diamond Jr, the chief executive of Barclays resigned after politicians stepped up heat and welcomed his resignation. The pressure on Diamond intensified after Labour Party chief demanded an independent investigation in the company.

Ed Miliband, leader of the opposition Labour Party said that Diamond’s decision to resign was “necessary and right” and added “this is about the culture and practices of the entire banking system” which is why “we need an independent, open, judge-led public inquiry.”

Chancellor of Exchequer George Osborne also welcomed the resignation.

Diamond resigned a day before he is scheduled to testify before the Treasury Select committee, responsible for probing London interbank offered rate or Libor setting.

The key issue in the minds of many bankers and investors is how viable and reliable London is as a financial center.

Some of the largest scandals in the last five years have roots in London starting with the now the infamous former head of A.I.G. Financial Products Joseph Cassano who brought down single handedly the largest insurance company in the world at the time and needed $250 billion in bailout from the U.S. Treasury and the Federal Reserve.

So far no one in London office of AIG has been implicated or tried by any regulatory authorities in the UK or the U.S.

The latest derivatives losses that may add up to $9 billion at JPMorgan also were conducted and supervised by traders at its London office. Bruno Michel Iksil known in the world of derivatives as London Whale for its outsize trades that rattled financial markets is a French trader and worked at company’s Chief Investment Office out of London.

And now, the widening scandal linked to rate setting for Libor and Euribor has roots in London based financial institutions.

The Libor scandal appears to be growing and it may have links to the Bank of England and to politicians according to the transcript of calls released by Barclays.

The day before Diamond is set to appear before the investigating committee the note released by Barclays highlighted the discussion between the Bank of England official and Barclays.

According to the note the call between Paul Tucker, the markets director at the BoE at the time and Barclays suggested that the bank could lower its rate.

“Tucker stated that the levels of calls he was receiving from Whitehall were ‘senior’ and that while he was certain we did not need advice, that did not always need to be the case that we appared as high as we have recently”, said Diamond in an email on October 30 to the then CEO John Varley and his long time associate Del Missier.

FSA and Bank of England had no immediate comments after the release of the note from Barclays.

CEO Robert Diamond, Chairman Marcus Agius and chief operating officer Jerry Del Missier have resigned and at least three more executives are likely to be forced out.