The Telegraph
28 Jun 2012
By Robert Winnett

Royal Bank of Scotland and Lloyds have been accused of systematically rigging financial markets in a growing international scandal which wiped billions off the value of shares in Britain’s biggest banks.

Bob Diamond, the chief executive of Barclays, is under pressure to resign after the bank admitted it had conspired to fix global interest rates with David Cameron, the Prime Minister, saying he should take responsibility.

The scandal now threatens to engulf taxpayer-funded Lloyds and RBS, which according to court documents obtained by The Daily Telegraph have also been accused of routinely distorting basic financial data used to set interest rates.

As British banks faced a potential criminal investigation billions were wiped off their value, with shares in Barclays falling by 15.5%. RBS’s share price plunged by more than 10 percent yesterday, wiping more than £2 billion off the value of taxpayers’ stake in the bank.

Executives at HSBC are also being investigated alongside London-based financial firms for their role in the scandal, which is estimated to have cost consumers, investors and businesses £30billion.

Mr Diamond’s position appears increasingly fragile. Vince Cable, the Business Secretary, said that he could be banned from running a British company following regulatory investigations.

David Cameron suggested that Mr Diamond should resign, saying that “people have to take responsibility for the actions” and that this process must go “all the way to the top”.

The growing scandal, which has international implications but largely took place in the City of London, has led to calls for the Prime Minister to establish a public inquiry into the banks.

Downing Street had initially tried to dismiss the situation as a “regulatory matter” but ministers yesterday queued up to condemn Barclays and other banks, as it emerged that:

*The Serious Fraud Office has begun talks with regulators over potential criminal investigations into senior Barclay’s executives and other bankers.

*George Osborne said the scandal was a “shocking indictment of the culture at banks like Barclays” as he pledged to tighten the law to make criminal prosecutions possible.

*A Barclays whistleblower accused the Government of failing to address the scandal which he first exposed more than four years ago.

*A former trader at the Royal Bank of Scotland claimed that it was “common practice” among senior employees to make requests to fix the Libor rate – and that senior management knew about the tactic.

*An independent analysis presented to American courts estimated that the scandal may have cost $45 billion (£30 billion) during the financial crisis alone. Most of the losses may have been incurred by pension funds and other investors.

*Senior financiers warned that the City’s position as a trustworthy place to conduct business was under threat by the action of the London bankers.

Earlier this week, Barclays was fined a record £290 million after it admitted that its traders and managers repeatedly made “false reports” in order to push Libor and other interest rate measures higher or lower than its true rate.

The manipulations helped increase traders’ profits and initially protected Barclays’ reputation.

However, they cost consumers and business dear. Market rules dictate that executives providing information to set Libor rates should be isolated from traders who have a financial interest in the rates.

One Barclays trader wrote: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger”.

The country’s most senior politicians condemned Barclays and the bank’s executives.

Speaking in Brussels, the Prime Minister said: “I’m determined we learn all the lessons from what has happened at Barclays. People have to take responsibility for the actions and show how they’re going to be accountable for those actions. It’s very important that goes all the way to the top of the organisation.”

Mr Diamond is expected to be hauled before a Parliamentary Committee next week to answer “some serious questions”.

Vince Cable Business Secretary said that it would be “seriously premature” to decide now whether Mr Diamond should be sacked, but added that the Government did have powers to disqualify directors.

“If the facts suggested action – and obviously we would be subject to legal advice; this is a legal process – then indeed that could well follow,” he said.

Mr Diamond was resisting calls to resign and the Barclays board was said to be supportive of his ongoing position. However, the bank is likely to consider further actions – possibly including repaying previous bonuses – in the coming days.

Senior sources said they were “taken aback” by the political reaction to the scandal, but believed that part of the reason the share price had fallen yesterday was the concern that Mr Diamond would be forced to resign and this would damage the bank.

Mr Diamond, one of the country’s top paid bankers who previously headed Barclays’ investment banking division, has already acknowledged that the settlement over the scandal with regulators would damage customer trust in the bank, and said he and other senior executives would forgo bonuses this year.

The British Bankers Association (BBA), which establishes the parameters for how Libor is set each day, said it was “shocked” by the behaviour that led to Wednesday’s fine, and called on the government to look at imposing new rules.

“The banks which contribute to the Libor rate must meet the necessary obligations to their regulators,” 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.”

More than 20 other banks are being probed by regulators from London to Japan and Brussels to North America.

“Barclays was extremely cooperative and the majority of these cases come down to not just the complexity but whether a firm is willing to cooperate and how much a firm is willing to cooperate above and beyond their legal requirements,” a regulatory source said.

Others who have already fired, suspended or seen staff leave after internal investigations include JPMorgan, Deutsche Bank, RBS and ICAP, run by former Conservative treasurer Michael Spencer.

“One of the reasons London is a major international financial centre is because of the perceived emphasis on trust and integrity in the London market,” said Simon Culhane, the chief executive of the Chartered Institute for Securities and Investment.

“This scandal can only serve to damage London’s reputation.”

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9363445/RBS-and-Lloyds-drawn-into-rate-rigging-scandal.html

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