March 25, 2023

DealBook: Former Senior Barclays Executive Faces Scrutiny in Parliament

Jerry del Missier, former chief operating officer of Barclays, arriving to give testimony to Parliament on Monday.Simon Dawson/Bloomberg NewsJerry del Missier, former chief operating officer of Barclays, arriving to give testimony to Parliament on Monday.

LONDON — Jerry del Missier, a former senior Barclays executive, faced tough questioning on Monday about his role in the bank’s rate-manipulation scandal during a tense parliamentary hearing, indicating that he had instructed bank employees to report lower rates at the behest of regulators.

Mr. del Missier, 50, stepped down from the British bank this month, shortly after Barclays settled British and American claims that it had submitted false rates to improve its earnings and deflect concerns about its financial health.

The case centers on a benchmark known as the London interbank offered rate, or Libor, which is used to help determine the pricing for trillions of dollars of financial products, including home loans and credit cards.

On Monday, the Canadian-born Mr. del Missier, a top deputy of the former Barclays chief executive, Robert E. Diamond Jr., faced questions from British politicians about whether he directed employees to report artificially low rates. In testimony, Mr. del Missier indicated that he had received instructions from Mr. Diamond to lower the rates, after the chief’s discussions with bank regulators on the matter.

In 2008, Mr. Diamond sent Mr. del Missier and another senior executive an e-mail regarding the government’s concerns about the bank’s Libor rate submissions. Mr. Diamond also discussed the issue with Mr. del Missier by phone, according to Mr. del Missier’s testimony on Monday.

The e-mail detailed a conversation between Mr. Diamond and Paul Tucker, deputy governor of the Bank of England, the country’s central bank. The two men discussed the bank’s financial position at the height of the financial crisis. After receiving the e-mail, Mr. del Missier instructed Barclays officials on Oct. 29, 2008, to lower the bank’s Libor submissions in line with those of rivals, according to regulatory filings.

In testimony, Mr. del Missier said he had acted in response to the conversation with Mr. Diamond. Mr. del Missier said he believed that senior government officials had instructed the bank to alter the rates. Mr. del Missier, however, did not speak to anyone at the Bank of England or other senior regulators about the issue.

“I expected that the Bank of England’s views would be incorporated into our Libor submissions,” Mr. del Missier said during his testimony on Monday. “The views would have resulted in lower submissions.”

Barclays agreed last month to a $450 million settlement with American and British authorities about the manipulation of Libor. According to regulatory documents, a number of the bank’s traders and some senior executives altered the firm’s Libor submissions for their own benefit between 2005 and 2009.

Several top Barclays executives, including Mr. Diamond, Mr. del Missier and the bank’s chairman, Marcus Agius, have resigned in the wake of the scandal.

Mr. del Missier’s testimony appears to contradict earlier statements by Mr. Tucker, the Bank of England deputy governor.

Mr. Tucker told the same parliamentary committee last week that his conversation with Mr. Diamond was related to fears that the financial markets might view Barclays to be at risk if its Libor submissions continued to be higher than those of other international banks.

Mr. Tucker said he called Mr. Diamond to remind him that people in the markets were questioning whether Barclays had access to capital. In the aftermath of the collapse of Lehman Brothers in 2008, officials worried that the bank might have to be bailed out if the financial markets perceived the firm was a credit risk.

“I wanted to make sure that Barclays’ day-to-day funding issues didn’t push it over the cliff,” Mr. Tucker told the parliamentary committee.

The testimony by Mr. del Missier comes after statements from Mr. Diamond that he never told his deputies to report false Libor rates. Mr. Diamond said his discussions were misinterpreted.

Mr. del Missier, however, said the e-mail outlining the conversation between Mr. Tucker and Mr. Diamond represented an instruction from government officials to alter Barclays’ Libor submissions.

During his hourlong testimony, Mr. del Missier said he would not have instructed Barclays officials to lower the rate if he had not been asked to do so by senior British government officials. He also told the committee that he never followed up with the Barclays officials about the effect of lowering the submissions

British politicians repeatedly asked him whether lowering the bank’s Libor submissions in line with those of rivals was illegal, improper and wrongful.

“It didn’t seem an inappropriate action given it was taken from the Bank of England,” he said.

British lawmakers repeatedly asked Mr. del Missier why he was not aware of the manipulation of Libor at Barclays dating back to 2005. He said he was not aware of that activity until the beginning of 2010.

Barclays was “up to its armpits in dishonest activity in the run up to that phone call,” Pat McFadden, a British politician who sits on the committee overseeing the testimony, said in reference to Mr. Diamond’s phone call with Mr. Tucker in 2008.

Mr. del Missier’s career mirrors the rise of Barclays Capital, as the firm’s investment banking division was known. He joined the bank in the late 1990s, and became co-chief executive of the investment banking division in 2009 after holding several other senior positions.

He rebutted lawmakers’ accusations that he was taking responsibility for the rate manipulation in an effort to save Mr. Diamond’s reputation.

“I’m not the fall guy for anything,” he said. “I have resigned my position for the good of the bank.”

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DealBook: U.S. Builds Criminal Cases in Libor Rate-Fixing Scandal

Barclays is at the center of an interest rate-fixing scandal.Carl Court/Agence France-Presse — Getty ImagesBarclays is at the center of an interest rate-fixing scandal.

As regulators ramp up their global investigation into the manipulation of interest rates, the Justice Department has identified potential criminal wrongdoing by big banks and individuals at the center of the scandal.

The department’s criminal division is building cases against several financial institutions and their employees, including traders at Barclays, the British bank, according to government officials close to the case who spoke on the condition of anonymity because the investigation is continuing. The authorities expect to file charges against at least one bank later this year, one of the officials said.

The prospect of criminal cases is expected to rattle the banking world and provide a new impetus for financial institutions to settle with the authorities. The Justice Department investigation comes on top of private investor lawsuits and a sweeping regulatory inquiry led by the Commodity Futures Trading Commission. Collectively, the civil and criminal actions could cost the banking industry tens of billions of dollars.

Authorities around the globe are examining whether financial firms manipulated interest rates before and after the financial crisis to improve their profits and deflect scrutiny about their health. Investigators in Washington and London sent a warning shot to the industry last month, striking a $450 million settlement with Barclays in a rate-rigging case. The deal does not shield Barclays employees from criminal prosecution.

The multiyear investigation has ensnared more than 10 big banks in the United States and abroad. With the prospects of criminal action, several firms, including at least two European institutions, are scrambling to arrange deals, according to lawyers close to the case. In part, they are trying to avoid the public outcry that stemmed from the Barclays case, which prompted the resignation of top executives.

The criminal and civil investigations have focused on how banks set the London interbank offered rate, known as Libor. The benchmark, a measure of how much banks charge one another for loans, is used to determine the borrowing costs for trillions of dollars of financial products, including mortgages, credit cards and student loans. Cities, states and municipal agencies also are examining whether they suffered losses from the rate manipulation, and some have filed suits.

With civil actions, regulators can impose fines and force banks to overhaul their internal controls. But the Justice Department would wield an even more potent threat by bringing criminal fraud cases against traders and other employees. If found guilty, they could face jail time.

The criminal investigations come at a time when the public is still simmering over the dearth of prosecutions of prominent executives involved in the mortgage crisis. The continued trouble in the financial sector, including the multibillion-dollar trading losses at JPMorgan Chase, have only further fueled the anger of consumers and investors.

But the Libor case presents a potential opportunity for prosecutors. Given the scope of the problems and the number of institutions involved, the rate-rigging investigation could provide a signature moment to hold big banks accountable for their activities during the financial crisis.

“It’s hard to imagine a bigger case than Libor,” said one of the government officials involved in the case.

The Justice Department has jurisdiction over the London bank rate because the benchmark affects markets in the United States. It could not be learned which institutions the criminal division is chasing next.

According to people briefed on the matter, the Swiss bank UBS is among the next targets for regulatory action. The Commodity Futures Trading Commission is pursuing a potential civil case against the bank. Regulators at the agency have not yet decided to file an action against the bank, nor have settlement talks begun. UBS has already reached an immunity deal with one division of the Justice Department, which could protect the bank from criminal prosecution if certain conditions are met. The bank declined to comment.

The investigation into the global banks is unusually complex and it could continue for years, and ultimately end in settlements rather than indictments, said the officials close to the case. For now, regulators are building investigations piecemeal because the facts of the cases vary widely. That could make it difficult to compile a global settlement, although some banks would prefer an industrywide deal to avoid the harsh glare of the spotlight, said a lawyer involved in the case.

American authorities face another complication as they build cases. Investigators still lack access to certain documents from big banks.

Before gathering some e-mail and bank records from overseas firms, the Justice Department and American regulators need approval from British authorities, according to the people close to the case. But officials in London have been slow to act, the people said. At times, British authorities have hesitated to investigate.

By contrast, the Justice Department and the Commodity Futures Trading Commission have spent two years building cases together. Lanny Breuer, head of the Justice department’s criminal division, has close ties with David Meister, the former federal prosecutor who runs the commission’s enforcement team.

In the Barclays case, the British bank was accused of reporting false rates to squeeze out extra trading profits and fend off concerns about its health. During the crisis, banks feared that reporting high rates would suggest a weak financial position.

Lawmakers in London and Washington are examining whether regulators looked the other way as banks artificially depressed the rates. On Friday, it was disclosed that a Barclays employee notified the Federal Reserve Bank of New York in April 2008 that the firm was underestimating its borrowing costs. Despite the warning signs, the illegal actions continued for another year.

But in April 2008, a senior enforcement official at the Commodity Futures Trading Commission, Vincent McGonagle, opened an investigation. He directed the case along with another longtime official, Gretchen Lowe.

At first the case stalled as the agency waited months to receive millions of pages of documents when Barclays pushed back against the American regulators, according to the officials close to the case. By the fall of 2009, the trading commission received a trove of information, providing a broad view into the wrongdoing.

A series of incriminating e-mail and instant messages, regulators say, laid bare the multiyear scheme. In one document, a Barclays employee said the bank was “being dishonest by definition.”

The case gained further traction in early 2010, when the agency’s enforcement team engaged the Justice Department. The department’s criminal division, led by Mr. Breuer, agreed that regulators had a strong case. The investigation continued until January 2012, when the trading commission notified Barclays lawyers that they were entering the final stages before deciding about an enforcement action.

As part of the deal, regulators pushed the bank to adopt new controls to prevent a repeat of the problems. Among other measures, the bank must now “implement firewalls” to prevent traders from improperly talking with employees who report rates.

The bank says that it provided extensive cooperation during the three inquiries, and has spent around $155 million on its own three-year investigation. Because it agreed to settle with British authorities, Barclays received a 30 percent fine reduction.

In the United States, Barclays offered to pay a fine of $200 million to the C.F.T.C., slightly below the initially proposed range, according to government officials close to the case. Mr. Meister’s team soon accepted the offer, securing the biggest fine in the commission’s history.

On June 27, British and American authorities announced the deal with Barclays, which agreed to pay more than $450 million total. “For this illegal conduct, Barclays is paying a significant price,” Mr. Breuer said then.

Susanne Craig contributed reporting.

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