April 18, 2024

DealBook: British Bank Chief Denies Getting Warning on Rates

Mervyn A. King, governor of the Bank of England, addressed a parliamentary committee on Tuesday.ReutersMervyn A. King, governor of the Bank of England, addressed a parliamentary committee on Tuesday.

8:05 a.m. | Updated

LONDON – Senior British officials said on Tuesday that they did not receive warnings from the Federal Reserve Bank of New York about possible rate-rigging during the financial crisis of 2008.

Speaking to a British parliamentary committee on Tuesday, Mervyn A. King, governor of the Bank of England, said discussions with American authorities had instead focused on ways to improve the London interbank offered rate, or Libor.

Timothy F. Geithner, who then ran the New York Fed, sent an e-mail to Mr. King in June 2008 that outlined reforms to the Libor system. They included recommendations that British officials “strengthen governance and establish a credible reporting procedure” and “eliminate incentive to misreport,” according to documents released last week.

Mr. King said the correspondence with Mr. Geithner, who is now the United States Treasury secretary, did not represent a warning about potential illegal activity related to Libor.

“At no stage did he or anyone else at the New York Fed raise any concerns with the Bank that they had seen any wrongdoing,” Mr. King told the parliamentary committee on Tuesday. “There was no suggestion of fraudulent behavior.”

Mr. King also provided additional detail about his discussions with Mr. Geithner concerning Libor.

The two men met in Basel, Switzerland, in May 2008 during a regular meeting of central bankers from the world’s leading economies. During a conversation, Mr. King said he had asked Mr. Geithner to submit suggestions about potential changes to the Libor system, according to Mr. King’s testimony on Tuesday.

The discussion was followed by several phone calls between Paul Tucker, deputy governor of the Bank of England, and William C. Dudley, the current president of the Federal Reserve Bank of New York, who was the executive vice president of its markets group at the time of the discussions.

Mr. King said the New York Fed did not share internal memorandums, which questioned whether international banks were accurately reporting their Libor submissions. American authorities began collecting information as early as 2007 about potential problems with the rate-setting process.

“Our contacts at Libor contributing banks have indicated a tendency to underreport actual borrowing costs,” New York Fed officials wrote in one of the memos, “to limit the potential for speculation about the institutions’ liquidity problems.”

Mr. King said some of the recommendations about changes to Libor that Mr. Geithner had sent in 2008 were included in a report by the British Bankers’ Association, the trade body that oversees the rate. The industry association released a review in late 2008 that outlined changes to the Libor process.

“At no stage did the New York Fed express any concerns about the final outcome,” Mr. King told the parliamentary committee.

Senior British officials said they did not believe the New York Fed’s recommendations were a warning that Libor was being manipulated, according to Mr. Tucker of the Bank of England, the country’s central bank. Suggestions from American authorities included how to “eliminate incentive to misreport” Libor submissions, as well as expanding the number of international banks that participated in the rate-setting process.

The recommendations “didn’t set off alarm bells,” Mr. Tucker said on Tuesday.

Mr. Tucker’s role in the rate-manipulation scandal was again questioned after new e-mails were released on Tuesday that detailed his discussions with Robert E. Diamond Jr., former chief executive of Barclays.

Documents from Barclays and government authorities show that the Bank of England official called Mr. Diamond in October 2008 to discuss the firm’s funding position at the height of the financial crisis. Regulators said Jerry del Missier, a top Barclays executive, later misinterpreted that conversation as an instruction from the British central bank to lower the firm’s Libor submissions.

The new e-mails released by the Bank of England show that Mr. Tucker had written to Mr. Diamond about Libor as earlier as May, 2008.

The documents also illustrate a close relationship between Mr. Diamond and the government official. After it was announced that Mr. Tucker would become deputy governor of the Bank of England in December 2008, Mr. Diamond e-mailed to congratulate him: “Well done, man. I am really, really proud of you,” Mr. Diamond wrote.

Mr. Tucker was equally friendly in his response. “Thanks so much Bob. You’ve been an absolute brick through this,” he said in an e-mail reply.

British lawmakers also questioned the senior officials on Tuesday about the steps that led to Mr. Diamond’s resignation this month. The British bank agreed to a $450 million settlement in June in connection with the manipulation of Libor.

Two days after the settlement was announced, Adair Turner, chairman of Britain’s Financial Services Authority, talked to Barclays’ chairman, Marcus Agius, about whether Mr. Diamond was the right person to lead the bank.

The Financial Services Authority had previously raised concerns about the bank’s corporate culture, and Mr. Turner said there were questions about whether Mr. Diamond was the most appropriate individual to lead the changes in governance inside Barclays.

The conversation was followed by a discussion between Mr. King and Mr. Agius on July 2, during which Mr. King said Mr. Diamond no longer had the support of the Financial Services Authority.

After the discussion, Mr. Agius held a conference call with the bank’s nonexecutive directors, who decided to ask Mr. Diamond to resign.

“If Bob Diamond had stayed on,” Mr. Turner told the parliamentary committee on Tuesday, “I strongly suspect that it would have been to the disadvantage of shareholders as well.”

Article source: http://dealbook.nytimes.com/2012/07/17/bank-of-england-chief-denies-n-y-fed-gave-warning-on-rate-rigging/?partner=rss&emc=rss

DealBook: Barclays’ Ex-Chief Robert Diamond Defends Testimony to Parliament

Robert E. Diamond Jr., Barclays' former chief, testified to lawmakers last week about the bank's interest-rate manipulation scandal.Pool photograph by Agence France-PresseRobert E. Diamond Jr., Barclays‘ former chief, testified to lawmakers last week about the bank’s interest-rate manipulation scandal.

LONDON — Robert E. Diamond Jr., the former chief of Barclays who resigned because of a scandal involving interest rate manipulation, defended his testimony to a British parliamentary committee as lawmakers called more senior officials to appear.

Late Tuesday, Mr. Diamond responded to criticism from British politicians that he had not been completely forthcoming last week at a hearing on the Barclays case.

“Any such suggestion would be totally unfair and unfounded,” Mr. Diamond wrote in a letter to Andrew Tyrie, the committee’s chairman. “The comments made at today’s hearing have had a terribly unfair impact upon my reputation.”

Mr. Diamond said that he would be willing to discuss the issue with lawmakers. A number of committee members have called for him to give more testimony.

However, there may not be time. The committee has one week before it recesses for the summer, and other officials have already been slated to give testimony on Monday.

That list includes top executives from the Financial Services Authority, including the regulator’s chairman, Adair Turner; Andrew Bailey, the head of the prudential business unit; and Tracey McDermott, the acting head of the enforcement and financial crime division. Jerry del Missier, a senior Barclays official who resigned last week, is also set to appear.

The committee is investigating the manipulation of the London interbank offered rate, or Libor. The rate underpins trillions of dollars of financial products, including mortgages, student loans and complex derivatives.

In late June, Barclays agreed to pay $450 million to British and American authorities to settle claims that it submitted bogus rates to deflect concerns about its health and improve profits.

Politicians in Washington and London are questioning whether officials did enough to avoid the scandal.

The New York Fed said on Tuesday that it had received “occasional anecdotal reports from Barclays of problems with Libor” as far back as late 2007. Barclays has said that it had informed American and British regulators about concerns with the rate, but officials did not address the problems.

On Tuesday, members of the parliamentary committee focused their anger on Marcus Agius, Barclays’ chairman, asking him about the actions of Mr. Diamond and the culture inside the bank.

Questions centered on two letters to Barclays from British regulators who raised questions about Mr. Diamond’s management style. Some concerns dated to his appointment to the bank’s top spot in late 2010.

During his testimony last week, Mr. Diamond said the bank had maintained a good relationship with the Financial Services Authority, adding that he did not recall that the regulator had questioned the bank’s activities or its internal culture.

On Tuesday, members of the committee asked Mr. Agius about Mr. Diamond’s testimony.

“Would you say that Mr. Diamond lied to this committee?” David Ruffley, a member of Parliament, asked Mr. Agius.

“I can’t comment on Mr. Diamond’s testimony,” Mr. Agius said.

Diamond Letter to Tyrie

Article source: http://dealbook.nytimes.com/2012/07/11/more-officials-called-to-testify-on-libor-scandal/?partner=rss&emc=rss

DealBook: More Officials to Testify as Diamond Defends His Actions

Robert E. Diamond Jr., Barclays' former chief, testified to lawmakers last week about the bank's interest-rate manipulation scandal.Pool photograph by Agence France-PresseRobert E. Diamond Jr., Barclays’ former chief, testified to lawmakers last week about the bank’s interest-rate manipulation scandal.

LONDON – Robert E. Diamond Jr., Barclays‘ former chief, defended his testimony as the list of senior officials set to appear before Parliament about the Barclays interest rate manipulation scandal is getting longer.

Top executives from the Financial Services Authority, the British regulator, and Jerry del Missier, a senior Barclays official who resigned because of the scandal, are to testify on Monday before a British parliamentary committee.

The regulators to testify include Adair Turner, chairman of the Financial Services Authority; Andrew Bailey, the head of its prudential business unit; and Tracey McDermott, the acting head of the regulator’s enforcement and financial crime division.

The move to question the senior British officials and Mr. del Missier comes after Robert E. Diamond Jr., the former head of Barclays, and Marcus Agius, its chairman, both testified before the committee.

On Tuesday, British lawmakers focused their anger on Mr. Agius, who was peppered with questions about the actions of Mr. Diamond and the culture inside the bank.

Their questions were centered on two letters that were sent by British regulators that raised questions about Mr. Diamond’s management style. Some of the concerns dated back to his appointment to the bank’s top spot in late 2010.

During his testimony last week, Mr. Diamond said the bank had maintained a good relationship with the Financial Services Authority, adding that he did not recall that the regulator had raised concerns about the bank’s activities or its internal culture.

The British politicians asked Mr. Agius whether Mr. Diamond had been completely forthcoming in his testimony.

“Would you say that Mr. Diamond lied to this committee?” David Ruffley, a member of Parliament, asked Mr. Agius.

“I can’t comment on Mr. Diamond’s testimony,” Mr. Agius replied.

In response, Mr. Diamond wrote to Andrew Tyrie, the committee’s chairman, late on Tuesday, saying he was “dismayed” that some of the politicians apparently believed he had been less than candid.

“Any such suggestion would be totally unfair and unfounded,” Mr. Diamond wrote, adding that he would be willing to discuss the issue with the British lawmakers. “The comments made at today’s hearing have had a terribly unfair impact upon my reputation.”

Diamond Letter to Tyrie

Article source: http://dealbook.nytimes.com/2012/07/11/more-officials-called-to-testify-on-libor-scandal/?partner=rss&emc=rss

European Central Bankers Criticize Role of Rating Agencies

Mario Draghi, the president of the European Central Bank, and Mervyn A. King, the governor of the Bank of England, separately questioned the role of rating agencies after Standard Poor’s cut its ratings Friday on nine European countries, including France and Italy.

One should “put less focus directly on what the ratings agencies say and more on what the market as a whole is saying in terms of sovereign debt,” Mr. King told a parliamentary committee Tuesday in London. “What we need to do is to move to a point, and I think markets have gone some way towards that, where they pay less attention to the verdicts of the ratings agencies.”

Mr. Draghi told the European Parliament in Strasbourg on Monday that “we should learn to do without ratings, or at least we should learn to assess creditworthiness.”

He added, “Certainly one needs to ask how important are these ratings for the marketplace over all, for investors.”

Ratings agencies have attracted criticism from politicians for specific downgrades, but the comments from the two central bankers questioned the wider role of the agencies.

The three big rating agencies — S.P., Moody’s Investors Service and Fitch Ratings — have repeatedly lowered their ratings for the sovereign debt of European economies over the past year, saying some austerity measures were not far-reaching enough to deal with high debt levels. The downgrades have made it more difficult for governments to raise money cheaply and heightened concerns about the ability of some countries to finance their debts.

Martin Winn, a spokesperson for Standard Poor’s, said the agency was “focused on fulfilling our role to investors by providing an independent view of creditworthiness — one based on rigorous analysis and our transparent and consistently applied criteria. We would also point out that our sovereign ratings have an excellent track record as indicators of default risk.”

A Moody’s representative said, “The fundamental concern over the role of credit rating agencies stems from their use in regulation, and Moody’s has long supported removing the mechanical reliance on ratings in regulation.”

A spokesman for Fitch, Daniel Noonan, wrote by e-mail that credit ratings “should be considered among numerous inputs when making investment decisions.” He added that Fitch “broadly supports efforts to reduce overreliance on ratings.”

In a sign that investors are already starting to pay less attention to rating agencies, Spain’s borrowing costs fell during an auction Tuesday even after Standard Poor’s cut the country’s debt rating by two levels on Friday. Greece also sold Treasury bills on Tuesday with a yield that was lower than at an auction in December.

Stock markets on Monday had shown a muted reaction to the downgrades, which were widely anticipated, and to a separate warning by Moody’s that France’s debt outlook was putting pressure on its credit rating.

Standard Poor’s on Monday also cut the top credit rating of the European Financial Stability Facility, the euro zone’s bailout fund, which sold €1.5 billion, or $1.9 billion, of six-month bills Tuesday.

The German finance minister, Wolfgang Schäuble, told a German radio station on Monday that he did not think “that S.P. really has understood what we have already gotten under way in Europe.”

The European Commission said Monday that Standard Poor’s recent downgrades of European economies ignored the progress that the countries had already made by reducing debt and implementing cost-saving measures.

Mr. King also sent a warning Tuesday to British banking executives not to accept excessive bonuses. “The reputation of those institutions will be affected if their senior executives reward themselves,” he said. “Particularly in a period when the banks, in terms of their share prices, have hardly been stellar.”

Josef Ackermann, the chief executive of Deutsche Bank, lamented Tuesday what he said was the erosion of confidence in the solidity of the euro, the European Union and even the principles of Western democracy.

“Not only followers of the Occupy movement have been asking questions about the business models of banks and the purpose of certain financial product,” Mr. Ackermann told a business audience in Frankfurt. “It is also investors, customers and representatives of the entire political spectrum.”

“Doubts expressed publicly by politicians have deeply shaken belief in the permanence of the currency union,” he said.

“The government debt crisis has amplified the loss of credibility and legitimacy of the market economy,” he added, adopting an unusually pessimistic tone four months before he is to retire. “The belief in the superiority of the West and of democracy has been thrown into question.”

Jack Ewing contributed reporting from Frankfurt.

Article source: http://feeds.nytimes.com/click.phdo?i=f1a9e1cf53528634ea71788ae80119a0

Struggle of Israel’s Channel 10 Tied to Political Wars

Traveling in luxury at the expense of others may violate public service rules and the law. It also doesn’t look good. But instead of accolades for its journalism, Channel 10 is now fighting for its life, and Mr. Netanyahu’s hostility toward it is being cast as part of a broader cultural and political war in Israel between the left and the right involving efforts to control the judiciary, the reporting of news and public discourse.

It is a battle that most immediately pits the rightist governing coalition against the liberal elite as the government refuses to postpone the station’s debt, which could force it to close.

“The fight over Channel 10 is partly a matter of revenge — Netanyahu wants to make them pay for what they did to him,” argued Nachman Shai, a member of Parliament from the opposition party Kadima and a former news executive who helped set up Channel 10 a decade ago. “But it is also part of a three-front struggle — over the courts, civil society and the media. The right wants to control every institution. Freedom of expression is at risk.”

Those around Mr. Netanyahu, who filed a million-dollar libel suit against the station, say Channel 10 is a failed business whose payments have been forgiven numerous times and is hiding behind political complaints and inflated concerns about free speech to make the public absorb its debts.

On its face, the request by Channel 10 is modest. It owes $11 million, most of it to an official regulatory body, the rest in taxes. Ayelet Metzger, deputy director general of the regulatory body, said both her agency and the Finance Ministry had agreed to postpone the debt for a year.

But a parliamentary committee this month voted against doing so. Mr. Netanyahu’s coalition obliged its members to vote no. This means that Channel 10 will, in theory, shut its doors at the end of January, when its 10-year franchise ends.

In practice, there will be a drawn-out battle to save it because of the belief that it plays a vital role in public debate through its crusading investigative news broadcasts. The only other independent station is Channel 2, which is also facing economic woes.

Otherwise, Mr. Netanyahu has strong influence over other media outlets: the state-owned Channel 1, State Radio and a freely distributed and successful newspaper, Yisrael Hayom, owned by a close American friend, the billionaire Sheldon Adelson.

President Shimon Peres, a member of Kadima, has weighed in, saying that the channel’s effort to survive is “a struggle for Israel’s democratic character.” In a related comment, he also declared himself “ashamed” of several bills being considered in Parliament that he believes chip away at democracy in Israel: an antidefamation law, one that silences loudspeakers issuing the Muslim call to prayer and another that prevents foreign governments from financing left-wing Israeli groups.

Last summer, Parliament passed a law making it possible to sue anyone who advocates boycotting things Israeli, including West Bank settlements.

Channel 10 infuriated the Netanyahus over the reports of lavish travel, when he was a member of Parliament and as finance minister, and spurred a continuing investigation by the state comptroller. But the channel also angered previous leaders, playing a key role in exposing the way the 2006 Lebanon war was conducted and publicizing suspicions of corrupt land deals in the family of former Prime Minister Ariel Sharon.

It brought to the screen the fate of a Palestinian doctor in Gaza whose three daughters were killed in the 2008-2009 offensive there by Israeli forces, and showed a minister from the nationalist party Yisrael Beiteinu arriving at the home of a woman suspected to be his mistress and leaving the house the next morning.

“I believe that if we die, the message will be clear that if you have the guts to open a critical news company, you will go bankrupt,” said Raviv Drucker, the station’s chief investigative reporter, who broke the story of Mr. Netanyahu’s travels.

An executive of Channel 10 who spoke on the condition of anonymity said that he had been told by a top aide of Mr. Netanyahu that if Mr. Drucker were given a long vacation, postponing the debt would be a lot easier. Mr. Netanyahu’s office said no such conversation had occurred.

Article source: http://www.nytimes.com/2011/12/27/world/middleeast/struggle-of-israels-channel-10-tied-to-political-wars.html?partner=rss&emc=rss

Ex-Executives Dispute Testimony of Murdoch Son

The former executives said they informed Mr. Murdoch at the time that he was authorizing an unusually large secret settlement of a lawsuit brought by a hacking victim.

Mr. Murdoch, who runs the News Corporation’s European and Asian operations, including News International, the British subsidiary, told the committee on Tuesday that he agreed to pay £725,000, which was then about $1.4 million, in the case because it made financial sense. He testified that he was not aware at the time of the evidence, which most likely would have become public had the case proceeded and undermined the company’s assertion that hacking was limited to “a lone rogue reporter.”

But Colin Myler, the former editor of the tabloid, The News of the World, and Tom Crone, the former News International legal manager, said Mr. Murdoch was “mistaken” in his testimony delivered to the parliamentary committee. They said he knew when settling the lawsuit brought by a soccer union leader, Gordon Taylor, about a crucial piece of evidence that had been turned over to the company: an e-mail marked “for Neville” containing the transcript of a hacked cellphone message, apparently a reference to the paper’s chief reporter, Neville Thurlbeck.

“In fact, we did inform him of the ‘for Neville’ e-mail which had been produced to us by Gordon Taylor’s lawyers,” Mr. Myler and Mr. Crone said in the statement released Thursday night.

The circumstances surrounding the settlement of the Taylor case are a focus of the parliamentary inquiry because they could shed light on whether there was an effort by News International to obscure the extent of the hacking. It was the first lawsuit brought by a hacking victim, and it came while the company, which owned the tabloid, was reeling from the 2007 guilty pleas of Clive Goodman, the paper’s royal reporter, and Glenn Mulcaire, a private investigator, for hacking the phones of the royal household.

Mr. Myler and Mr. Crone’s statement seems to mark a round of finger-pointing, coming days after the testimony of Mr. Murdoch and his father, Rupert, the News Corporation chairman, who testified that he was not to blame for the hacking and was let down by people he trusted.

Mr. Myler and Mr. Crone spoke out because they were angered that the company was telling reporters that they had failed to tell James Murdoch about critical facts in the civil lawsuit, three executives said in interviews. In a statement, Mr. Murdoch said, “I stand by my testimony to the select committee.”

On Tuesday, Mr. Murdoch also told the committee that he “did not get involved in any of the negotiations directly” and that the settlement seemed reasonable at the time. Beyond Mr. Myler and Mr. Crone, other News International executives, as well as members of Mr. Taylor’s legal team, painted a picture of Mr. Murdoch as being quite engaged in keeping the case from going to trial. They say that the size of the settlement he authorized reflected that.

In July 2008, News International’s chief financial officer, Clive Milner, was asked to endorse a check for £725,000. He was not told what it was for — only that “the check is for James Murdoch,” according to a company official with direct knowledge of the matter and an account Mr. Milner has shared with friends.

The negotiations were so tightly held that only Mr. Crone, Mr. Myler and Mr. Murdoch knew about them, said two company officials. The officials said that even employees who were typically involved in legal decisions did not learn of the settlement until it leaked in a newspaper.

“I was gobsmacked” at the amount, said one of them.

Ravi Somaiya contributed reporting.

Article source: http://www.nytimes.com/2011/07/22/world/europe/22murdoch.html?partner=rss&emc=rss

DealBook: Britain Backs Higher Capital Rules for Banks

LONDON – Britain’s government is supporting a proposal that would require banks to hold more capital and partly shield retail operations from investment banking.

George Osborne, the chancellor of the Exchequer, is expected to endorse the plan when he addresses several hundred bankers and other financial professionals at a speech in London on Wednesday evening, a government official said. The proposal, which would most likely increase operating costs for banks, was initially made in an interim report by the government-backed Independent Commission on Banking in April.

Mr. Osborne’s backing makes it more likely that the rules, which include a so-called ring-fencing of consumers’ deposits from potential losses at investment banking operations, will be made law. If the country adopts the regulation, it would put Britain ahead of the United States in pushing through changes to separate more clearly the traditional deposit-taking services from the riskier but more lucrative trading operations.

But questions remain about which parts of a bank’s operations should be included in the ring fence, a rule intended to limit the need for future bank bailouts by taxpayers. For example, it is unclear whether wealth management or derivatives to hedge currency movements would be inside or outside the shielded operation. The banking commission is expected to present its final report to the government on Sept. 12.

Since the interim report in April, British banks have lobbied to limit the parts of the bank that would be shielded from the rest of the business and would have to be financed separately. Stephen Hester, chief executive of Royal Bank of Scotland, which is majority-owned by the government, told a parliamentary committee last week that the proposed rules would actually have the opposite of the desired effect and increase risk in the banking system.

British “banks are focused on ensuring financial stability and supporting economic recovery,” the British Bankers’ Association said in a statement on Wednesday. “A significant part of this work is ensuring the right safeguards are in place for customers’ deposits.”

Shares in Britain’s biggest banks, including HSBC, Barclays and Royal Bank of Scotland, fell on Wednesday in London.

Mr. Osborne is also expected to support the commission’s proposal to require larger banks, like Barclays, to hold at least 10 percent of equity relative to their risk-weighted assets, more than the 7 percent detailed in the so-called Basel III agreement to overhaul international bank regulation.

But the commission also said that because investment banks operate globally, British banks should not be subject to different capital rules than those agreed to internationally.

The commission was created to find ways to strengthen the British banking system and avoid large losses for taxpayers in any future financial crises. It also had a mandate to improve competition in the British retail banking sector, which became more concentrated over the last three years.

Article source: http://dealbook.nytimes.com/2011/06/15/britain-backs-higher-capital-rules-for-banks/?partner=rss&emc=rss