In the vortex of a global bank row

Chancellor of the Exchequer George Osborne ramped up hostilities with Labour over Britain’s banking culture this week when he accused his Labour counterpart, Ed Balls, and other former ministers of being at the heart of the row over the manipulation of interest rates during the credit crisis.

Although the ousted Barclays chief executive, Bob Diamond, denounced the behaviour of some of his staff as “reprehensible” – but refused to quell any controversy about a potential payoff – the chancellor declared that Labour ministers were “clearly involved” in intervening on the London interbank offered rate (Libor).

The carefully staged attack by Osborne, immediately dismissed by Balls’s team as “desperate” and “frenzied”, was designed to intensify the pressure on Labour as its leader Ed Miliband was trying to establish a judge-led inquiry into the banking scandal. Miliband, who clashed with Prime Minister David Cameron in the Commons on the best way to investigate the manipulation of interest rates at Barclays, was pushing for a time-limited inquiry along similar lines to the Leveson inquiry into press ethics.

If that fails, Labour is not expected to block Cameron’s plan for a parliamentary inquiry to be chaired by Andrew Tyrie, the Tory chairperson of the Commons treasury select committee. Tyrie has said he would not chair the inquiry unless he won cross-party support, but a Labour abstention on the government motion could allow him to go ahead.

Labour is likely to deflect criticism of a climbdown by arguing that the prime minister, who initially rejected an inquiry, has changed tack as the scale of the Barclays scandal has unfolded.

Interest-rate benchmarks
The record £290-million fine levied on Barclays was for attempting to manipulate the interest-rate benchmarks, supposedly based on the rates at which banks lend to one another, Libor, and its European equivalent, Euribor, between 2005 and 2009. There were two significant findings: Barclays traders did favours for colleagues, the so-called submitters, to submit higher or lower rates to the Libor panel to generate profits and that, during the 2008 banking crisis, they reduced submissions to avoid any suggestion that the bank was in financial difficulty.

In a three-hour session in front of the treasury select committee this week, Diamond spoke of his disgust when he learned that traders at Barclays had manipulated interest rates in 2005.

“When I read the emails from those traders I got physically ill. It is reprehensible behaviour and, if you are asking me should those actions be dealt with, absolutely.”

Barclays upped the stakes on the eve of Diamond’s evidence by releasing an internal note by its former chief executive. Diamond’s note of a private conversation with the Bank of England’s deputy governor, Paul Tucker, suggested that civil service figures at the time of the last government may have encouraged Barclays to intervene on the Libor rate during October 2008.

As Diamond prepared to give evidence, Osborne seized on the note to implicate ministers close to former Labour prime minister Gordon Brown. He did not name them, but treasury sources said they might be former business minister Baroness Vadera and Balls, even though he was schools minister.

“As for the role of the Labour ­government and the people around Brown, well, I think there are questions to be asked of them,” Osborne told Spectator magazine. “They were clearly involved and we just haven’t heard the full facts, I don’t think, of who knew what when.” – © Guardian News & Media 2012

Rough Diamond stamped his mark on Barclays
One of nine children, Robert E Diamond, known internally at Barclays as Red, grew up in Concord, Massachusetts, in the United States.

His parents were teachers, a career path he had intended to follow by starting out as a lecturer in management and organisation at the University of Connecticut.

After four years he ended up at Morgan Stanley in 1980, following a businessman who had mentored him. He moved to Credit Suisse First Boston a decade later and arrived at Barclays in 1996.

A sports fanatic – when he ran Barclays Capital, his office was full of sports memorabilia – he adopted Chelsea as his “soccer” team, becoming a regular visitor to their dressing room and presenter of trophies when the club won the premier league sponsored by Barclays. He loves Boston Red Sox and American football team the Patriots, and while his children were young ran the little league football in Hyde Park, London.

A keen skier and regular golfer and tennis player, he put his drive and energy into building Barclays Capital into a major league player. It was he who boarded a flight to the United States in mid-September 2008 with his close lieutenants to try to buy Lehman Brothers in the hours before it collapsed. Although the collapse unleashed a wave of fear in global markets, it led to a massive opportunity for Diamond to buy just the Wall Street business and relocate back to the US, where his children were studying.

Cultures
The Barclays Capital culture always jarred with the staid high-street banking business, but even in City cultures was regarded as a testosterone-charged, alpha-male environment, surprising perhaps for a man who has sponsored a chair of women’s studies at Colby College in Maine.

The current controversy over the London interbank offered rates (Libor) is the toughest reputation hit Barclays Capital has had to take, but it is by no means the first. Lord Mandelson once described Diamond as the “unacceptable face” of banking. There were also the four ­traders who celebrated with a lavish £44000 dinner at Petrus, Gordon Ramsay’s restaurant, and the legal action against the Guardian to try to suppress details of tax avoidance schemes run by Barclays. More recently, there was the high-profile decision to shut down two tax-avoidance schemes submitted to revenue and customs by the bank, even before the bank revealed it had paid a £5.7-million tax bill incurred by Diamond when he returned to London to become chief executive in January 2011.

Diamond transformed Barclays’s disastrous investment bank BZW into a reborn Barclays Capital and rejuvenated the fund manager Barclays Global Investors, sold off during the banking crisis to bolster the bank’s coffers.

John-Paul Crutchley, banks analyst at UBS, said: “It is fair to say that there is no one individual who has imposed more of their vision, personality and character on a UK bank over the last decade than Bob Diamond at Barclays. From the creation of Barclays Capital in 1997 to the acquisition of Lehman’s US business and the sale of Barclays Global Investors: all were driven by Bob Diamond.” – Jill Treanor, © Guardian News & Media 2012

Jill Treanor
Jill Treanor works from London. Jill Treanor has over 11327 followers on Twitter.
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