March 29, 2024

DealBook: Barclays’ Ex-Chief Spreads Blame in Scandal Over Rates

Former Barclays chief Bob Diamond testified at the British Treasury Select Committee on Wednesday.Agence France-Presse — Getty ImagesFormer Barclays chief Bob Diamond testified at the British Treasury Select Committee on Wednesday.

6:11 p.m. | Updated

LONDON — Robert E. Diamond Jr., the former chief executive of Barclays, told a British parliamentary committee on Wednesday that the manipulation of global interest rate benchmarks involving 14 traders at the bank had made him “physically sick.”

But the American-born banker, who resigned on Tuesday, also placed some of the blame for the rate manipulation scandal on regulators.

He said that the bank had raised concerns multiple times with American and British authorities about discrepancies over how Libor — the London interbank offered rate, a measure of how much banks charge each other for loans — was set. The bank was not told to stop the practice, according to Barclays’ documents submitted to the British Parliament.

“A number of banks were posting rates that were significantly below ours that we didn’t think were correct,” Mr. Diamond told the committee.

“I can’t sit here and say no one in the industry didn’t know about the problems with Libor,” he said. “There was an issue out there and it should have been dealt with more broadly.”

Mr. Diamond also sought to deflect attention from the bank’s role in the authorities’ continuing investigation, pointing out that other major global financial institutions also had been implicated. United States and British regulators, who announced a $450 million settlement with Barclays last week, are currently investigating the actions of more than 10 large financial institutions, including JPMorgan Chase, UBS and Citigroup.

The former chief of Barclays, who said he had been notified about the fines and civil penalties just a few days before the settlement was announced, said that the bank had been singled out because it was the first to settle.

The agreement with regulators showed that Barclays traders had altered Libor for their own benefit from 2005 to 2009. Senior executives also told employees to suppress the bank’s rate submissions during the three years through 2009, in response to the financial crisis that was pushing borrowing costs for most global financial institutions to record highs.

Mr. Diamond placed some of the blame for the rate manipulation scandal on regulators.ReutersMr. Diamond placed some of the blame for the rate manipulation scandal on regulators.

The committees’ members, some of whom have worked in the financial services industry, including at Barclays, focused on the role of Mr. Diamond, who previously led the firm’s investment banking unit.

The 60-year-old executive, who initially appeared nervous giving his testimony, but gradually became more comfortable during the nearly three hours of questioning, batted away questions of his being solely to blame for the scandal.

“I don’t feel personal culpability. What I do feel is a strong sense of responsibility,” Mr. Diamond said, adding he had made the decision to resign when support from regulators and shareholders for his position at the bank began to wane.

He also implicated the Bank of England, the country’s central bank, and leading British politicians.

During his testimony, Mr. Diamond described a phone call he received at the end of October 2008 from Paul Tucker, a high-ranking official at the Bank of England. According to Mr. Diamond, Mr. Tucker expressed concerns from senior politicians that Barclays had been submitting rates consistently higher than rivals, a sign of relatively poor health.

Mr. Diamond then e-mailed Jerry del Missier, a top deputy, about the conversation, saying that Mr. Tucker had stated that it “did not always need to be the case that we appeared as high as we have recently,” according to documents released by the bank.

Mr. del Missier, who also resigned on Tuesday, subsequently directed employees to keep the submissions lower, or at least in line with rivals. His actions, some regulators say, were owed to a “miscommunication,” rather than instructions from Mr. Tucker.

Mr. Diamond reiterated that he had not told senior executives to suppress the bank’s Libor submissions. He said he had only been told last month about the activity, which occurred amid the financial crisis.

“I was unaware that Jerry had the impression that Tucker’s phone call was taken as an instruction,” he said.

Mr. Tucker, who is the front-runner to take over as governor of the Bank of England, on Wednesday made a request to testify to the committee about his role in the Barclays scandal.

Mr. Diamond is the first person implicated in the rate manipulation scandal to give evidence to the British parliamentary committee. The outgoing chairman of Barclays, Marcus Agius, and high-ranking officials from the Financial Services Authority, the country’s securities regulator, and the Bank of England also are expected to testify.

In addition, the British prime minister, David Cameron, has announced a wide-ranging inquiry into the British banking sector, and expects the results to be published by the end of the year.

During his testimony, Mr. Diamond reserved his most angry words for the Barclays’ traders who had manipulated rates to benefit their own trading positions.

Regulatory filings show Barclays officials shared information between the firm’s treasury department, which help set Libor, and trading units, which buy and sell financial products on a daily basis. Firms are expected to maintain so-called Chinese walls between the divisions, to avoid confidential information being used in pursuit of a profit.

But e-mails among Barclays employees that were released by regulators showed that when a trader wanted the treasury department to change a rate, an employee responded: “For you, anything,” Another quipped: “Done … for you big boy.”

Some of the individuals based in New York and London could still potentially face civil and criminal prosecutions.

“I am sorry, angry and disappointed,” Mr. Diamond told the parliamentary committee on Wednesday, his voice becoming increasingly emotional. “There’s no excuse for the traders’ actions. This is wrong, and I’m not happy about it.”

The members of Parliament also asked Mr. Diamond whether he would give up any bonuses or payments as part of his resignation package. The former Barclays chief replied that any changes would be a question for the bank’s board.

Mr. Diamond was awarded £6.3 million ($10.3 million) in pay and perks for last year, and British politicians have warned that any so-called golden parachute for leaving his post would be unacceptable.

“It would be completely wrong if people leaving under these circumstances were given some vast payoff,” Mr. Cameron, the prime minister, told Parliament on Wednesday. “It would be completely inexplicable to the public. I hope that won’t happen.”

Article source: http://dealbook.nytimes.com/2012/07/04/diamond-defends-barclays-response-to-interest-rate-scandal/?partner=rss&emc=rss

DealBook: Barclays’ Ex-Chief Tries to Deflect Blame in Inquiry

Robert E. Diamond Jr. on Wednesday before a British parliamentary committee investigating the role of Barclays in a rate-manipulation scandal.Pool photograph by Agence France-PresseRobert E. Diamond Jr. on Wednesday before a British parliamentary committee investigating rate manipulation at Barclays.

LONDON — Robert E. Diamond Jr., the former chief executive of Barclays, defended the bank’s response to a rate-manipulation scandal as he testified on Wednesday before a British parliamentary committee.

Mr. Diamond, who resigned on Tuesday after the bank reached a $450 million settlement with American and British authorities related to the manipulation of key interest rates, said the actions of 14 traders at the bank that were connected with the scandal had made him “physically sick.”

The American-born banker tried to deflect attention from the firm’s role in the continuing investigation by authorities, noting that other major global financial institutions had also been implicated.

Mr. Diamond, who said he was notified about the fines and civil penalties a few days before the settlement was made public on June 27, also placed some of the blame on regulators.

He said the bank had raised concerns many times with American and British authorities about how Libor — the London interbank offered rate, a measure of how much banks charge each other for loans — was set.

“I can’t sit here and say no one in the industry didn’t know about the problems with Libor,” Mr. Diamond said. “There was an issue out there and it should have been dealt with more broadly.”

British politicians focused their questions on Mr. Diamond’s role in the scandal. The former Barclays chief, who initially appeared nervous giving his testimony but gradually became more comfortable during nearly three hours of questioning, took responsibility for the problems that occurred inside Barclays.

“To prevent further damage to the reputation of Barclays, I decided to step down,” Mr. Diamond said, adding that he had made the decision on Monday evening when support from regulators and shareholders for his position at the bank began to wane.

He reserved his most angry words for the Barclays traders who had manipulated rates to benefit their own trading positions. Some of the individuals based in New York and London could still potentially face civil and criminal prosecutions.

“I am sorry, angry and disappointed,” Mr. Diamond said, whose voice became increasingly emotional. “There’s no excuse for the traders’ actions. This is wrong, and I’m not happy about it.”

He reiterated that he had not instructed senior executives to suppress the bank’s Libor submissions.

Mr. Diamond described a phone call he received at the end of October 2008 from Paul Tucker, an official at the Bank of England, Britain’s central bank. Mr. Tucker questioned why Barclays was submitting rates consistently higher than those of rival banks, a sign of relatively poor health.

Mr. Diamond then e-mailed Jerry del Missier, a top deputy, about the conversation, saying that Mr. Tucker stated it “did not always need to be the case that we appeared as high as we have recently,” according to documents released by the bank.

Mr. del Missier, who also resigned on Tuesday, then directed employees to keep the submissions lower, or at least in line with those of rivals. His actions, some regulators say, were a result of a “miscommunication,” rather than instructions from Mr. Tucker.

“I was unaware that Jerry had the impression that Tucker’s phone call was taken as an instruction,” Mr. Diamond told the committee.

Mr. Tucker, who is the front-runner to take over as governor of the Bank of England, on Wednesday made a request to testify to the committee about his role in the Barclays scandal.

Politicians also asked Mr. Diamond whether he would give up any further bonuses or payments as part of his resignation package. The former Barclays chief said that any changes would be a question for the bank’s board.

Mr. Diamond was awarded £6.3 million, or $10.3 million, in pay and perks for last year, and British politicians have warned that any so-called golden parachute for leaving his post would be unacceptable.

“It would be completely wrong if people leaving under these circumstances were given some vast payoff,” Prime Minister David Cameron told Parliament on Wednesday. “It would be completely inexplicable to the public. I hope that won’t happen.”

Article source: http://dealbook.nytimes.com/2012/07/04/diamond-defends-barclays-response-to-interest-rate-scandal/?partner=rss&emc=rss

DealBook: Barclays’ C.E.O. Resigns as Bank Frames a Defense

Barclays's headquarters in Canary Wharf in east London.Carl Court/Agence France-Presse — Getty ImagesBarclay’s headquarters in Canary Wharf in east London.

When Barclays bank manipulated key interest rates to bolster profits during the 2008 financial crisis, senior executives said they were following a common practice that regulators implicitly approved, according to documents released by the bank and authorities.

But the illicit acts, which led to a $450 million penalty for the bank, claimed its biggest victims on Tuesday: Robert Diamond, the British bank’s chief executive, and one of his top deputies, Jerry del Missier, the chief operating officer. The scrutiny is expected to grow on Wednesday, when Mr. Diamond appears before a British parliamentary committee.

Even as they resigned, Barclays published documents indicating that some executives thought they were responding to an implied directive from the Bank of England, Britain’s central bank.

Barclays, in its defense, said that it not only advised the Bank of England and other British authorities about interest rate discrepancies across Wall Street, but also the Federal Reserve Bank of New York. The Wall Street firms weren’t told to stop the practice, Barclays said.

The disclosures put a spotlight on the interaction between regulators and big banks over the setting of interest rates during the financial crisis, raising questions about what authorities knew about the practice.

Investigators cast some doubt on Barclays’ view. The bank never explicitly told regulators that it was reporting false interest rates that amounted to manipulation, according to regulatory documents.

“Barclays is just one example of why we need a culture shift in the financial world — and that means all the way to the top,” said Bart Chilton, a member of the Commodity Futures Trading Commission, the American regulator leading the investigation.

After the Barclays settlement, American and British authorities are now shifting their focus to a pattern of wrongdoing on Wall Street, pursuing action against more than 10 big banks scattered across the globe, including UBS, JPMorgan and Citigroup. Authorities suspect that big banks reported false rates throughout the crisis to squeeze out extra trading profits and mask their true financial health.

The Barclays case is the first blow in a series of potential actions against the banks that help set the London interbank offered rate, which is used to determine the borrowing costs for numerous financial products, including student loans, mortgages and credit cards. Libor and the other interbank rates are published daily, based on surveys from banks about the rates at which they could borrow money in the financial markets.

Amid the Barclays fallout, other British banks are now scrambling to settle with authorities, according to people with knowledge of the matter who spoke on the condition of anonymity. American regulators have set their sights on a large European institution, another person said.

The Commodity Futures Trading Commission is building several cases in piecemeal fashion, choosing at this point to mount evidence against each bank rather than unveil a single global settlement, according to the people. The next case is not expected to be imminent.

The agency pursued Barclays first, viewing it as a case study in Libor manipulation. The enforcement action hit all the flash points in the broad investigation, exposing a multiyear scheme touching nearly every layer of management and business practices across three continents.

Regulators accused the bank of lowering its Libor submissions to deflect concerns about its high borrowing costs amid the crisis. Mr. Diamond’s top deputies sought rates in line with rival banks and directed employees not to put your “head above the parapet,” according to regulatory filings.

Barclays was also accused of “aiding attempts by other banks to manipulate” interest rates, further underscoring the clubby nature of Wall Street. In some cases, bank employees coordinated with former colleagues who worked at rival firms as a way to manipulate the rates, according to the regulatory documents.

“This scandal is another indication of how the massive growth of the financial markets did not go hand-in-hand with any thought about how to control the trading activity,” said Pete Hahn, a fellow at Cass Business School in London.

In building the case, regulators benefited from a series of brazen e-mails that outlined the scope of the scheme. At one point, a trader called a colleague a “superstar” for furthering the illicit actions. Another employee even acknowledged that the bank was submitting “patently false” rate information.

Barclays initially resisted scrutiny from the trading commission. The C.F.T.C., Barclays argued, was overstepping its authority when it opened an investigation in early 2008.

When that argument failed, Barclays switched gears, claiming it had briefed government officials. Over the course of a year, the bank discussed its Libor submissions 13 times with the British regulator, the Financial Services Authority, and 12 times with the Federal Reserve, according to documents Barclays made public on Tuesday ahead of Mr. Diamond’s testimony.

In one call on April 2008, a Barclays manager acknowledged to the Financial Services Authority that the bank was understating its Libor submissions. “So, to the extent that, um, the Libors have been understated, are we guilty of being part of the pack? You could say we are,” the Barclays manager said, according to regulatory documents.

“I would sort of express us maybe as not clean clean, but clean in principle.”

Or, as one Barclays official told the British Bankers Associations, the organization that oversees Libor, “we’re clean but we’re dirty-clean, rather than clean-clean.” Barclays made similar comments to the Federal Reserve Bank of New York, the documents say.

The back-and-forth illustrated the tangled web of relationships on Wall Street, where authorities and bankers maintain close ties. Despite the troubling acknowledgments from the bank, regulators didn’t put an immediate halt to the practice. Some executives said they thought that regulators encouraged the actions.

In October 2008, Mr. Diamond received a call from a Bank of England official, Paul Tucker, who questioned why Barclays was submitting rates consistently higher than rivals, a sign of relatively poor health.

Mr. Diamond then e-mailed a top deputy about the conversation, saying that Mr. Tucker stated it “did not always need to be the case that we appeared as high as we have recently,” according to documents the bank released on Tuesday.

The deputy, Mr. del Missier, then directed employees to keep the submissions lower, or at least in line with rivals. His actions, some regulators say, was owed to a “miscommunication,” rather than instructions from Mr. Tucker.

The Financial Services Authority investigated Mr. del Missier’s actions, but did not pursue a prosecution, Barclays said. The agency, however, did issue a rebuke of the bank’s activities.

“The Libor scandal has caused a huge blow to the reputation of the banking industry,” Adair Turner, chairman of the Financial Services Authority, said in a speech on Tuesday.

Article source: http://dealbook.nytimes.com/2012/07/03/barclays-c-e-o-resigns-as-bank-frames-a-defense/?partner=rss&emc=rss

Looking to Streamline Airport Security Screenings

But Kenneth Dunlap, director of security at the International Air Transport Association, a global airline lobbying group, suggested just such a situation, seemingly straight out of the 1990 Arnold Schwarzenegger film “Total Recall.” In it, travelers would stop only briefly to identify themselves before entering a tunnel where machines would screen them for metals, explosives and other banned items as they walked through.

Such a vision may remain just that, a relic from a 20-year-old movie. But with global air traffic approaching 2.8 billion passengers a year and growing steadily about 5 percent a year, industry executives and security experts say a fundamental rethinking of today’s security checkpoints is inevitable.

What is less clear, however, is when — and to what degree — technology, regulation and public acceptance may come together to create nuisance-free security screening worldwide. Moreover, critics of the current system, including aviation security consultants, airport executives and passenger advocacy groups, say the innovations may not be any more likely to thwart a determined terrorist than today’s systems.

As to the air industry group’s idea, “it is a concept that has been growing in popularity,” said Norman Shanks, an aviation security and airport management consultant near London. “Technically, it is feasible. But practically, it’s fraught with problems.”

There is little disagreement over the need for vigilance at airports. But after the British authorities uncovered a plot in 2006 to bomb passenger planes bound for the United States using liquid explosives and an attempt in 2009 by a Nigerian man to ignite a bomb hidden in his underwear, new security measures have proliferated, stretching checkpoint wait times.

According to the airline group, airport checkpoints globally cleared an average of just 149 people an hour in 2011, down from 220 people an hour five years ago. At peak travel periods like Christmas, the number of passengers cleared has slowed to as few as 60 an hour at certain airports.

Many of the technologies that would be needed to drive a reliable walk-through security checkpoint are still laboratory prototypes. Others, like full-body scanners, biometric identification and various liquid and conventional explosives detection systems and even infrared lie detectors, are already in use or being tested in airports. But public concerns about privacy and the potential health effects of repeated exposure to X-rays, for instance, have led many governments to tread carefully.

“With any new technology, you get a certain amount of ‘What is this about?’ ” Janet Napolitano, the Homeland Security secretary, said in an interview. She said that the 500 or so body scanners in place at more than 100 airports in the United States had recently been equipped with software that generated a generic outline of passengers to protect their privacy. And while she played down the potential health risks linked to certain types of body scanners that use X-ray technologies, she acknowledged that “there is always a certain reticence when radiation is involved.”

To many security experts, however, improving both waiting times and security has less to do with rolling out sophisticated new machines and more with gathering information about passengers before they even arrive at the airport.

In the United States, the Transportation Security Administration has begun to shift to a more “risk-based” method of screening airline passengers, with the premise that the overwhelming majority of travelers pose no threat, yet must still be screened.

The first small step in this direction is a new program called PreCheck. Also known as the “trusted traveler program,” it provides airport security agents with the kind of information airlines routinely collect and store on their frequent fliers, including how they paid for their tickets, the history of their past flights and personal information like their home addresses.

Article source: http://www.nytimes.com/2011/12/21/business/streamlining-airport-security.html?partner=rss&emc=rss

U.S. Allowing BP to Bid on Oil Leases in Gulf of Mexico

Just a day before, the Interior Department cited BP, the British oil company, and its two principal contractors for numerous safety and environmental violations related to the explosion that sank the Deepwater Horizon rig in April 2010.

Michael Bromwich, the head of the new Bureau of Safety and Environmental Enforcement, disclosed the decision at a House committee hearing. The committee was reviewing the findings of a government investigation into the BP disaster, which left 11 workers dead and spilled millions of barrels of oil into the Gulf of Mexico.

“The question is, ‘Do you administer the administrative death penalty based on one incident?’ ” Mr. Bromwich told reporters after the hearing. “And we’ve concluded that’s not appropriate.”

Mr. Bromwich told the House committee that his agency had “thought about this issue quite a lot” before deciding to let BP participate in the first scheduled auction of offshore leases since the accident. Two million deepwater acres will be opened for exploration and drilling in the western gulf.

It was a welcome development for BP, which has been struggling to rebuild its exploration portfolio and remake the company after the accident. On Thursday, it got a second piece of good news closer to home when British authorities gave permission to BP and its partners to proceed with a $7 billion project to develop a large oil field off the Scottish coast.

At the House hearing, Raymond Dempsey Jr., a vice president of BP America, said, “We believe that we have the necessary systems and capabilities in place to continue to enhance the safety of deepwater drilling.”

But the Obama administration’s decision to let BP bid for leases was sharply criticized by environmentalists.

“We think it’s too soon to let BP back in there,” said Athan Manuel, director of lands protection at the Sierra Club. “These guys shouldn’t have the benefit of the doubt anymore.”

In the citations issued Wednesday night against BP, Transocean, the rig operator, and Halliburton, the cement contractor for well, the Interior Department said that the three companies failed to protect safety and the environment. The 15 separate violations could force the companies to pay as much as $45.7 million, but more important, it was the first time the government had moved to punish offshore contractors that take instructions from oil field operators like BP.

The sanctions will probably be small compared with the fines expected to come under the Clean Water Act, which could reach more than $20 billion for BP.

“The fact that there were violations of federal drilling regulations will strengthen the government’s arguments for large penalties under the Clean Water Act,” said David M. Uhlmann, director of the Environmental Law and Policy Program at the University of Michigan Law School and a former federal environmental prosecutor.

But the bigger question is whether the Justice Department will file any criminal charges against any of the companies involved. An investigation has been under way since the accident and, Mr. Uhlmann said, “the drumbeat gets louder with every passing week for criminal charges against BP, Transocean and Halliburton.”

The violations issued by the Interior Department, which reflected the recent findings of a joint investigation by the Coast Guard and Interior Department, could also strengthen the legal position of victims of the spill who have filed claims against BP and the two contractors. More than 100,000 claimants are seeking compensation for economic losses in a federal court in New Orleans. The trial is scheduled to begin in February.

Article source: http://feeds.nytimes.com/click.phdo?i=2a4363ff51ec18bf70c80fce13500a00