If you’re being asked to lie, get it in writing

If we take Bob Diamond and Paul Tucker at their word, part of the Libor scandal at Barclays can be chalked up to a series of comic misunderstandings, like a children’s game of telephone.

It’s a bit much to swallow, but the spectacle sure has been fun to watch.

Both men agree that on Oct 29, 2008, while the financial system was on the brink, Tucker, who is the Bank of England’s deputy governor, called Diamond on the phone. Diamond, who resigned last week as Barclays’ chief executive, was head of the company’s investment banking business at the time.

In Diamond’s version, Tucker told him “he had received calls from a number of senior” UK government officials asking “why Barclays was always toward the top end of the Libor pricing”, according to a file note Diamond wrote.

Tucker said “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”, according to Diamond’s memo.

Tucker, testifying before a UK parliamentary panel this week, said he wasn’t nudging Barclays to underreport its Libor submissions.

Rather, Tucker said he was expressing concern that Barclays was paying too much to borrow money — and sending signals to the markets that it was desperate for funding, at a time when Barclays was widely viewed as the next big UK bank to need a government bailout. Tucker said he didn’t make any record of the talk.

Libor (or the London interbank offered rate) is the now-infamous interest-rate benchmark used in hundreds of trillions of dollars of transactions globally. Each day, in surveys overseen by the British Bankers’ Association, major banks estimate their borrowing costs. It has long been an open secret that banks routinely misstated their numbers.

Last month, Barclays agreed to pay $453m to settle US and UK claims that it manipulated its Libor submissions as far back as 2005 — years before the phone call in question. Sometimes the bank low-balled its costs to make itself look healthier. Other times, it filed false rates to make trading positions more profitable. On some occasions, its traders colluded with other banks, Barclays admitted.

Diamond told the same parliamentary panel last week that he didn’t interpret Tucker’s comments as an instruction to lower Barclays’s Libor submissions. Another top executive did perceive them that way, however, after receiving Diamond’s memo and passed down orders to that effect to the bank’s submitters. That person, Jerry del Missier, resigned as Barclays’s chief operating officer July 3.

The supposed misunderstandings don’t end there. In his October 2008 file note, Diamond wrote that he asked Tucker “if he could relay the reality, that not all banks were providing quotes at the levels that represented real transactions”.

Tucker told members of the British parliament’s treasury committee he didn’t take that statement to mean there was cheating going on but “they are paying a higher rate than they are judging they would need to pay.”

Tucker also was asked about a 2007 meeting with banking-industry members of a Bank of England liaison group. Minutes show “several group members thought that Libor fixings had been lower than actual traded interbank rates”.

Tucker, who chaired the meeting, said “it did not set alarm bells ringing”.

“This doesn’t look good, Mr Tucker,” committee chairman, Andrew Tyrie, said. “It doesn’t look good that we have in the minutes on the 15th of November 2007, what appears to any reasonable person to be a clear indication of low- balling, about which nothing was done.”

Diamond’s credibility doesn’t look any better. This week, Barclays departing chairman, Marcus Agius, released an April 10 letter from the chairman of the UK’s Financial Services Authority, Adair Turner, expressing doubts that Barclays could be trusted.

At last week’s hearing, Diamond said the FSA had been happy with the bank’s “tone at the top”. He downplayed the FSA’s concerns as mere “cultural issues,” even when asked about the letter, which hadn’t been released publicly yet when he testified.

Here’s one lesson that hopefully has been learned from all this: If you ever think someone in business is telling you to lie, ask that person to put it in writing.

— Jonathan Weil is a Bloomberg columnist