Facebook Twitter Google Plus Vimeo Youtube Feed Feedburner

Business Home LBoard

UK banks face new scandal, Barclays boss in peril

June 29, 2012

LONDON: Britain will expose today a second scandal involving the country’s banks in as many days, as Barclays boss Bob Diamond clings to his job after regulators slapped a record fine on the lender for rigging interest rates.

The Financial Services Authority will announce it has found evidence that banks mis-sold products to protect small businesses against a rise in interest rates, a person familiar with the matter said.

With public, political and business outrage at bankers’ behaviour deepening, the industry is likely to draw compensation claims that could cost it billions of pounds, legal experts say.

A string of mis-selling cases has rocked the financial services industry for over two decades and banks are already likely to pay upwards of 9 billion pounds (US$14 billion) in compensation for mis-selling loan insurance.

While a number of banks are likely to be drawn into the latest mis-selling scandal, Diamond has found himself first in the firing line after US and British authorities fined Barclays US$450 million on Wednesday for manipulating the London interbank offer rate (Libor).

Prime Minister David Cameron said Diamond – who was running the investment banking arm Barclays Capital when the rigging occurred in 2005-2009 – and other bosses had some “big questions to answer”. Britain also called in the fraud squad to investigate possible crimes.

“Politicians have already been baying for blood and calling for the head of Bob Diamond, especially as he was in charge at BarCap at the time,” said Stephen Peak, manager of the Henderson UK Alpha and European Absolute Return funds and a shareholder in the bank.

“We feel that the Barclays board will instinctively wish to resist this, as Diamond is clearly the architect and leading light of Barclays, but feel that the pressure may be too great.”

Diamond, whose fat bonuses following the financial crash of 2008-09 drew widespread criticism, won few political friends last year when he told a parliamentary committee that it was time for bankers to stop apologising.

Shares in Barclays slumped 15% yesterday on concern that Barclays will face lawsuits from US investors and that Diamond may go.

Diamond admitted in an open letter to Britain’s Treasury Select Committee yesterday that the bank engaged in “inappropriate behaviour” to lower submissions.

In his letter, Diamond said the investigation highlighted two types of manipulation used by the bank, and he would happily attend a Treasury Committee meeting on the issue.

The Libor scandal, which disclosed e-mails in which bankers appeared to promise bottles of champagne to each other for help in setting the rates, has fuelled the anger with the financial

Authorities in Europe, North America and Japan are investigating many banks which help to set Libor, and others are expected also to be heavily fined. Shares in RBS and Lloyds also fell sharply yesterday.

Thomson Reuters Corp is the British Bankers’ Association’s official agent for the daily calculation and publishing of Libor. The company said it continues to support the BBA in calculating and distributing Libor rates.



Readers are required to have a valid Facebook account to comment on this story. We welcome your opinions to allow a healthy debate. We want our readers to be responsible while commenting and to consider how their views could be received by others. Please be polite and do not use swear words or crude or sexual language or defamatory words. FMT also holds the right to remove comments that violate the letter or spirit of the general commenting rules.

The views expressed in the contents are those of our users and do not necessarily reflect the views of FMT.