Serious Fraud Office investigators are in talks with the City watchdog in Britain over the Barclays rate-rigging scandal that has rocked the banking industry, Chancellor George Osborne said today.
George Osborne told MPs the affair exposed yesterday was “a shocking indictment of the culture of banks like Barclays in the run-up to the financial crisis”.
The Financial Services Authority (FSA), which along with US regulators landed Barclays with a £290m (€362.5m) fine for manipulating the rates at which banks lend to each other, was holding talks with the Serious Fraud Office (SFO), he said.
The Chancellor echoed comments from British Prime Minister David Cameron that Barclays “had serious questions to answer” as pressure mounted on chief executive Bob Diamond to step down.
Shares in Barclays plummeted 17%, wiping £4bn (€5bn) off its market value, while UK taxpayer-backed Royal Bank of Scotland dropped 14% as Mr Osborne said it was among several global banks also being investigated.
Mr Osborne added: “It is clear that what happened at Barclays, and potentially other banks, was completely unacceptable, was systematic of a financial system that elevated greed above all other concerns, and brought our economy to its knees.”
Turning to Mr Diamond, who waived his bonus for 2012 in light of the scandal, the Chancellor said:
``As far as the chief executive of Barclays is concerned, he has some very serious questions to answer today.
“What did he know and when did he know it? Who in the Barclays’ management was involved and who, therefore, should pay the price?”
The controversy, which covers a period between 2005 and 2009, could spread to other lenders, as HSBC, UBS and Citigroup are also being investigated.
The Chancellor said he would look at strengthening the criminal sanctions available to the financial regulators and added the Financial Services Bill could be amended.
The penalties from UK and US regulators, including a record £59.5m (€74.3m) fine from the FSA, followed claims that Barclays manipulated the Libor (London interbank offered rate) and Euribor interbank lending rates.
The rates are set on wholesale money markets – where banks lend to each other - which in turn affects rates they pass on to customers through credit cards, loans and mortgages.
The British Bankers’ Association (BBA) launched a review into Libor and how it was set in March. In a statement, the BBA said: “As part of this review we will now be asking the authorities to consider in what manner the Libor setting mechanism should be regulated in the future.”
In the depths of the financial crisis, Barclays gave false information about the interest rates it had to pay to borrow money to paint a false picture of its health to markets.
Mr Diamond, who was in charge of Barclays Capital at the time the breaches occurred, apologised and said nothing was more important to him than “having a strong culture at Barclays”.
Senior executives Jerry del Missier, Rich Ricci and chief financial officer Chris Lucas will also waive their 2012 bonuses.
A trail of emails, instant messages and phone transcripts disclosed by the FSA showed how traders requested Barclays make changes to the Libor rate to boost their profits.
Mr Osborne said the communications “read like an epitaph to an age of irresponsibility”.
In one request for a change to the Libor rate, a trader said: “Coffees will be coming your way either way, just to say thank you for your help in the past few weeks”. To which the Barclays’ submitter responded: “Done, for you big boy.”
The scandal is another blow to the beleaguered banking sector as it battles to restore its tarnished image in the wake of the financial crisis, the scandal of mis-sold payment protection insurance (PPI) and the computer problems at RBS which froze millions out of their accounts.
Barclays is the first major financial institution to settle with regulators following a wide-ranging investigation that has spanned North America and Europe.
But Tracey McDermott, the FSA’s acting director of enforcement and financial crime, said a number of investigations are still continuing, opening the door to further penalties against banks worldwide.
She said: “Obviously we need to look at each case on its own particular facts but the initial indications are that Barclays was not the only firm that was involved in this.”
The fine from the FSA would have been £85m (€106m) if Barclays had not co-operated.
Barclays also agreed to settle a penalty of $200m (€160m) with the Commodity Futures Trading Commission (CFTC) and $160m (€128m) to the US Department of Justice (DoJ).
Mr Diamond took a £2.7m (€3.4m) cash bonus last year despite widespread criticism that his pay failed to reflect the struggling performance of the bank. Overall, his package was worth £17.7m (€22.2m), including a £5.7m (€7.1m).
Andrew Tyrie, chairman of the Commons Treasury Committee, said they would now be summoning chief executive Mr Diamond to account for what happened.
“Banks were clearly acting in concert. I fear it’s not going to be the end of the story, that we are going to find that other banks have been involved,” he said.