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DealBook: A Chief With Flair Falls From His Perch

July 4, 2012 by Leave a Comment

Robert Diamond, the American born chief executive of the British bank Barclays, resigned on Tuesday.Daniel Lews/Visual Media, via Bloomberg NewsRobert Diamond, the American born chief executive of the British bank Barclays, resigned on Tuesday.

LONDON — Robert E. Diamond Jr., a fiercely competitive Wall Street executive who hated to lose, recognized late Monday night that he was losing.

Until then, the American-born chief executive of the British banking giant Barclays was convinced that he could survive the rising calls for his ouster after accusations from regulators in Britain and the United States that Barclays had manipulated important global interest rates with the knowledge of senior management.

On Monday, the 60-year-old executive wrestled with the pressures confronting his bank from regulators and British politicians. Realizing that he had become a lightning rod, Mr. Diamond decided to resign, according to a person with direct knowledge of the matter who spoke on the condition of anonymity because the discussions were meant to be private.

“My motivation has always been to do what I believed to be in the best interests of Barclays,” Mr. Diamond said in a statement on Tuesday. “The external pressure placed on Barclays has reached a level that risks damaging the franchise. I cannot let that happen.”

People who know Mr. Diamond well say that because his wife and three children live in the United States, the idea of remaining in a city where he had become a public enemy of sorts had lost all appeal.

It was an abrupt downfall for a man who over two decades had built an investment banking powerhouse nearly from scratch at Barclays, a 322-year-old British bank previously known as an old-fashioned financial institution.

In every way, Mr. Diamond, who grew up near Boston but eventually became a British citizen, brought American flair to the stodgy world of British banking. Charming, with a gleaming smile, he was a relentless promoter of the Barclays brand, attaching it to golf outings, soccer leagues and even to London’s new public bicycle rental system.

But his embrace of the American-style pay and bonus culture became one of his main vulnerabilities.

Mr. Diamond paid his people, from whom he demanded and usually got unstinting loyalty, extremely well — and he was very well rewarded himself.

Mr. Diamond was awarded £6.3 million, or $10.3 million, in pay and perks for last year. The pay of two of his top executives, Jerry del Missier and Rich Ricci, has not been officially disclosed. All of them, including Chris Lucas, the chief financial officer, have said that they will give up their awards for 2011.

Many shareholders in Britain were offended by these compensation levels, as well as Mr. Diamond’s practice of deploying significant financial resources to the riskier areas of the bank. At the shareholder meeting in April, Mr. Diamond faced a crowd of hecklers, some of whom dressed as eagles, reflecting the bank’s logo.

And he also drew frequent rebukes from regulators and politicians for Barclays’ numerous efforts to reduce its tax liabilities and those of its clients.

Despite his reputation as being as hard-charging as a trader, Mr. Diamond always saw himself as a builder of businesses. His stint early in his career as a bond trader on Wall Street at Morgan Stanley was relatively short. His hunger to design, build and administer investment banking operations — and instill a binding culture within them — drove his subsequent career.

Mr. Diamond is said to have believed deeply in the idea that a common culture underpinned a bank’s success, and he spoke frequently of his “no jerks” policy — a reference to eliminating any bad apples in his bank.

But, the gloating e-mails from his traders who have been accused by American and British investigators of engaging in the interest rate deceptions suggest that a different type of culture prevailed among some of his bankers.

The son of teachers, Mr. Diamond was a business school professor at the University of Connecticut before taking his first job in banking in the 1970s, in the information technology department of Morgan Stanley. He soon rose to become a senior bond executive at that company.

In 1996, he came to London as an investment banker. Forced out of a senior job at Credit Suisse that same year, he was tapped by Barclays to run its small bond division.

Back then, old-line commercial banks like Barclays were eager to build more profitable banking operations that would trade derivatives, bonds and foreign exchange — activities for which London has emerged as a global trading hub.

Soon, Mr. Diamond was delivering most of Barclays’ profits. His reputation as a seizer of opportunity was solidified when, after the cataclysmic collapse of Lehman Brothers in 2008, he arranged for Barclays to acquire the salvageable pieces of that bank for $1.75 billion. When he toured the trading floor of Lehman for the first time in September 2008, the loudspeaker blared “God Save the Queen.”

Next to the Lehman acquisition, Mr. Diamond’s other notable achievement was his securing of an investment lifeline from Middle East investors in 2008 that kept Barclays from having to accept government money, as other troubled banks in Britain had to take.

When John S. Varley retired as Barclays’ chief executive in early 2011, Mr. Diamond was able to grab the prize he had longed for: the opportunity to run his own bank, one that ended last year with £1.5 trillion, or $2.3 trillion, in assets and £5.8 billion in pretax profits.

The problem, however, was that running a commercial bank in Britain in 2011 had become a largely political affair. After the global financial crisis and the subsequent economic slump in Britain, regulators, politicians and not least the governor of the Bank of England, Mervyn A. King, took aim at British banks deemed too reliant on risky trading profits — the very business that Mr. Diamond had created.

Mr. Diamond did his best to try to assuage skeptical British regulators and politicians. He cultivated ties with Peter Mandelson, the influential Labour politician who had earlier called Mr. Diamond “the unacceptable face of banking” in Britain. He maintained a close working relationship with Paul Tucker, the deputy governor of the Bank of England. In late 2008, he had a conversation with Mr. Tucker over the setting of Libor rates — the issue at the heart of the controversy.

But diplomatic outreach could not overcome disputes over his pay, embarrassing disclosures over taxes and ultimately a widely accepted view here that Barclays, with assets about the size of the British economy, was too risky for its own good — not to mention that of the country.

Speaking before a Parliamentary committee last year, Mr. Diamond declared that “a period of remorse and apology for banks” needed “to be over.”

On Wednesday, when he testifies to Parliament about the Barclays debacle, he is expected to offer apologies, even as he defends himself and the bank.

Stanley Reed contributed reporting.

Article source: http://dealbook.nytimes.com/2012/07/03/a-chief-with-flair-falls-from-his-perch/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: Barclays to Pay Over $450 Million in Regulatory Deal

June 27, 2012 by Leave a Comment

A branch of Barclays in London.Andy Rain/European Pressphoto AgencyA branch of Barclays in London.

Barclays has agreed to pay more than $450 million to resolve accusations that it attempted to manipulate key interest rates, the first settlement in a sprawling global investigation involving many of the world’s biggest banks.

The British bank struck a deal with regulators in Washington and London, as well as the Justice Department. The settlement is seen as the first in a series of potential cases against other major financial firms.

“When a bank acts in its own self-interest by attempting to manipulate these rates for profit, or by submitting false reports that result from senior management orders to lower submissions to guard the bank’s reputation, the integrity of benchmark interest rates is undermined,” said David Meister, the enforcement director of the Commodity Futures Trading Commission, the American regulator involved in the Barclays case.

The broad investigation centers on the way Barclays and other big banks set key benchmarks for borrowing, lending rates that affect corporations and consumers.

Regulators have questioned whether the banks attempted to improperly set certain rates — including the London interbank offered rate, or Libor, and the Euro interbank offered rate, or Euribor — at a level that was favorable to their own institutions. Authorities are also looking at HSBC, Citigroup, JPMorgan Chase and other firms.

In the Barclays case, regulators say they uncovered “pervasive” wrongdoing that spanned a four-year period and touched top rungs of the firm, including members of senior management and traders stationed in London, New York and Tokyo. A 45-page complaint laid bare the scheme, describing how Barclays made false reports with the aim of manipulating rates to increase the bank’s profits.

The complaint also outlines how Barclays, at the height of the financial crisis, submitted artificially low figures to depress the rate and deflect scrutiny about its health. The bank at the time faced concerns that it was reporting high borrowing rates pointing to a weak financial position.

The practice prompted unease among some employees, who worried the bank was “being dishonest by definition.”

The Barclays settlement represents a record for the two regulators. The futures commission levied a $200 million penalty, the largest in its history, while the Financial Services Authority in London imposed a $92.8 million fine. As part of the settlement deal, the Justice Department agreed to not prosecute Barclays, although federal prosecutors are continuing a criminal investigation into other banks and bank employees.

“The events which gave rise to today’s resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business,” the Barclays chief executive, Bob Diamond, said in a statement. “When we identified those issues, we took prompt action to fix them and cooperated extensively and proactively with the authorities.” Mr. Diamond added that he and three other top executives had voluntarily agreed to give up their bonuses this year.

In the aftermath of the financial crisis, global regulators have been looking into whether many of the world’s largest banks attempted to manipulate Libor, a measure of how much banks charge each other for loans. In essence, the benchmark is an average of the interest rates at which that the big banks say they can borrow from the capital markets.

An important barometer of the health of the financial system, the rate not only affects big banks and corporations but also homeowners. Libor and similar rates are used to determine the price for more than $350 trillion worth of financial products, including complex derivatives, student loans, credit cards and mortgages.

At least nine agencies, including the Justice Department, the Financial Services Authority of Britain and Financial Supervisory Agency of Japan, have centered their investigations on Libor. Authorities are also looking into the activity surrounding similar benchmarks known as Tibor, the Tokyo interbank offered rate, and Euribor.

“Barclays’ misconduct was serious, widespread and extended over a number of years,” Tracey McDermott, acting director of enforcement and financial crime at the Financial Services Authority, said in a statement. “Barclays’ behavior threatened the integrity of the rates with the risk of serious harm to other market participants.”

Libor and the other interbank rates provide benchmarks for global short-term borrowing, and are published daily based on surveys from banks about the rates at which they could borrow money in the financial markets. Currently, more than a dozen financial firms, including JPMorgan, Bank of America and HSBC, provide information to set the daily American dollar Libor rate.

Regulators are investigating whether banks shared information between their treasury departments, which help to set Libor, and their trading units, which buy and sell financial products on a daily basis. Financial institutions are expected to maintain so-called Chinese walls between the two divisions to avoid confidential information being used to turn a profit as part of banks’ daily trading operations.

Analysts say the Libor system, which was created in 1986 and is overseen by Thomson Reuters on behalf of the British Bankers’ Association, does not provide sufficient transparency about how banks set their daily interest rates for borrowing in the financial markets.

When many banks were unable to borrow in the financial markets during the financial crisis, authorities raised concerns about the figures that firms were using to set Libor.

As bank funding costs rose to historic highs after the collapse of Lehman Brothers, regulators started to worry that financial firms might have submitted low interest rate figures that underpin Libor to appear in stronger financial positions than they actually were. With limited oversight over how banks set the rates, analysts say a bank could have provided lower figures in an effort to artificially keep its actual borrowing costs down.

Since then, regulators in the United States have issued subpoenas to several banks, including Bank of America, UBS and Citigroup, about how Libor was set. The Competition Bureau of Canada is investigating the activities of JPMorgan, Deutsche Bank and several other major banks about their activities around Libor. Japanese, Swiss and British authorities are also conducting their own inquiries into how the interbank rates have been set over the last five years.

In 2011, Charles Schwab, the brokerage firm and investment manager, sued 11 major banks, including Bank of America, JPMorgan and Citigroup, claiming they conspired to manipulate Libor.

Last August, Barclays disclosed that American and European authorities were investigating the activities of the British bank and other financial institutions concerning how Libor was set. The inquiries had been focused on accusations that Barclays and other firms suppressed interbank rates from 2006 to 2009, according to a statement from the British bank. Barclays had said it was cooperating with the investigation.

The British Bankers’ Association, Libor’s sponsor, defends its rate-setting process, though the trade body established a committee earlier this year to revise how the rate was set. The changes are expected to focus on establishing guidelines, including which bank employees can be told about the daily interbank rates and which specific financial instruments can be used to set Libor.

Barclays statement of facts from the Justice Department

Article source: http://dealbook.nytimes.com/2012/06/27/barclays-said-to-settle-regulatory-claims-over-benchmark-manipulation/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Karzai Demands U.S. Hand Over Afghan Banker

December 12, 2011 by Leave a Comment

The former governor of the Central Bank, Qadir Fitrat, is living in Virginia. He fled Afghanistan, saying he feared for his life after he was involved in making public the massive fraud at Kabul Bank and removing its senior management.

Neither of the top bank officers nor any of the major shareholders, who include a brother of Mr. Karzai’s and a brother of the first vice president, Marshal Fahim, have been prosecuted, although all of them are still in Afghanistan.

Referring to Mr. Fitrat, Mr. Karzai said, “The government of the United States should cooperate and hand him over to us.”

“Bring Fitrat and hand him over to Afghanistan to make clear who is to blame,” he said. “But our hand can’t reach to America.”

Mr. Karzai made the remarks at an event sponsored by the United Nations to mark International Anti-Corruption Day. Afghanistan is one of the world’s most corrupt countries, tying for second worst in rankings by Transparency International, which tracks perceptions of global corruption.

Several Western diplomats and officials working with the Afghan government said they were disappointed by Mr. Karzai’s speech, in which he appeared to again shift much of the blame for corruption to foreigners. While foreigners are unquestionably involved in some of the corruption, they shared responsibility with the Afghans and were only peripherally involved in the Kabul Bank debacle.

Mr. Karzai also asked that foreigners who give aid to the country tell Afghan officials if government officials or their relatives ask for bribes. Foreign governments have helped finance anticorruption efforts, but the Afghans have often squashed high-profile corruption prosecutions of senior officials. That has been a continuing effort by NATO to comb through military contracts with Afghan businesses to detect corruption and terminate contracts in which there has been manifest abuse. That effort has gone on largely behind the scenes, so it is difficult to tell if it has had much success.

Ryan C. Crocker, the American ambassador, said he believed that corruption was now being taken more seriously, although progress was slow and none of the main people responsible for the Kabul Bank fraud had been prosecuted. The Afghan government lost more than $850 million in the bank’s collapse. While some of that money has been recovered — more than expected, according to several officials — the government will probably have to pay $450 million to $500 million to cover losses.

“I am told they have a series of indictments that have been kept in the pending file as they concentrate on asset recovery,” Mr. Crocker told reporters on Saturday. “Look, it’s hardly a perfect world. And it isn’t going to be for quite some time. What I look for is a trajectory: Is the line going up or down? Very cautiously and very incrementally, I see it going up. In other words, corruption is being taken more seriously at higher levels.”

“Does that mean we’ve turned the corner? We’ll see,” he added.

Mr. Karzai’s focus on Mr. Fitrat and his jab at the United States are the latest in a series of similar comments he has made about the fraud at Kabul Bank. In an interview with the German magazine Der Spiegel last week, he also blamed the United States for Kabul Bank’s troubles, saying, “The Americans never told us about this.”

“We believed a certain embassy was trying to create financial trouble for us,” he said. “We felt the whole bank scam was created by foreign hands.” Mr. Karzai declined to be specific, but the American Embassy is the only one that has deeply consulted with the Afghan banking system.

Article source: http://www.nytimes.com/2011/12/12/world/asia/karzai-demands-us-hand-over-afghan-banker.html?partner=rss&emc=rss

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DealBook: Sokol Is Accused of Misleading Buffett on Trades

April 28, 2011 by Leave a Comment

David L. SokolNati Harnik/Associated Press David L. Sokol is accused of “misleadingly incomplete disclosures.”

9:02 p.m. | Updated

Berkshire Hathaway directors have accused David L. Sokol, once considered a possible successor to Warren E. Buffett, of misleading the company about his personal stake in a lubricant manufacturer that Berkshire recently agreed to acquire.

Mr. Sokol, who resigned in March, never told Mr. Buffett that he had bought his stake in Lubrizol after Citigroup bankers pitched the company as a potential takeover target, according to a report by the audit committee of the Berkshire board that was released on Wednesday.

“His misleadingly incomplete disclosures to Berkshire Hathaway senior management concerning those purchases violated the duty of candor he owed the company,” the report says, which adds that Mr. Sokol may have failed his fiduciary duty under the law of Delaware, where Berkshire is incorporated.

The accusations are a stark turnaround for Berkshire, which had been careful not to criticize its former star manager. Indeed, when Mr. Buffett announced Mr. Sokol’s resignation on March 30, he said, “Neither Dave nor I feel his Lubrizol purchases were in any way unlawful.”

Berkshire’s annual shareholder meeting is on Saturday, an event in Omaha known as the Woodstock of capitalism that is attended by thousands. Investors and journalists had been expected to try to question Mr. Buffett about Mr. Sokol and the Lubrizol trades. The board’s report, which finds no fault with Mr. Buffett’s handling of the affair, could mute some of the scrutiny facing Berkshire.

The report also concluded that Mr. Sokol defied Berkshire’s insider trading policies by accumulating the personal stake in Lubrizol while orchestrating a potential takeover of the company. Munger, Tolles Olson, Mr. Buffett’s longtime outside law firm, helped prepare the report, which was presented to Berkshire’s board on Tuesday night. Ronald L. Olson, a partner at the firm, sits on Berkshire’s board.

Berkshire’s board and audit committee are considering whether to pursue “possible legal action against Mr. Sokol to recover any damage the company has sustained, or his trading profits,” the report says.

The Securities and Exchange Commission, meanwhile, is investigating Mr. Sokol’s trading, according to people close to the inquiry.

But Mr. Sokol’s lawyer, Barry W. Levine of Dickstein Shapiro, disputed several major assertions in the report, saying that his client had not traded improperly or violated company policies. Mr. Levine said that Mr. Sokol had been looking at a personal investment in Lubrizol since summer 2010, before Citigroup bankers had pitched Lubrizol. And he said that his client had told Mr. Buffett “twice, not once” about his ownership of Lubrizol shares before Mr. Buffett began discussions with the company.

“I am profoundly disappointed that the audit committee of Berkshire Hathaway would authorize the issuance of its report to the public without the care and decency to ask even a single question of Mr. Sokol,” Mr. Levine said in a statement.

Mr. Olson said that Mr. Sokol had been offered the opportunity, through his lawyer, to be interviewed by the audit committee but declined.

As a Berkshire manager, Mr. Sokol had stressed the importance of integrity and ethics to his employees. In his 2007 self-published book, “Pleased, But Not Satisfied,” Mr. Sokol, wrote: “Integrity is merely doing what is right, even when no one else is looking. It is being honest and candid. It is being forthright and candid.”

Mr. Sokol, 54, resigned from the company in March after it emerged that he had personally bought $10 million worth of stock in Lubrizol shortly before bringing the company to Mr. Buffett’s attention. Berkshire later agreed to buy Lubrizol for $9 billion — causing Lubrizol’s shares to surge and increasing the value of Mr. Sokol’s holding by some $3 million.

The shift in Berkshire’s position toward Mr. Sokol came, the audit committee’s report says, because Mr. Buffett and the company did not have the full story in March. Mr. Sokol’s conversations with Mr. Buffett and others at Berkshire about his investment in Lubrizol were “intended to deceive” and “its effect was to mislead,” the report said.

Most notably, Mr. Sokol failed to tell Mr. Buffett about the central role that Citigroup played in spawning the Lubrizol deal, according to the report. Mr. Buffett is known to mistrust Wall Street, while Mr. Sokol often flew to New York to huddle with bankers about potential deals.

Mr. Sokol first expressed interest in a Lubrizol acquisition in December, after Citigroup bankers recommended the company as a possible takeover target. Mr. Sokol jumped at the idea.

Citigroup then played matchmaker between Mr. Sokol and Lubrizol’s chief executive, James L. Hambrick, shuttling information between the two executives.

On Dec. 17, a Citigroup banker called Lubrizol’s chief executive to let him know about Berkshire’s possible interest. That same day, Citigroup told Mr. Sokol, then chairman of MidAmerican Energy and NetJets, that Mr. Hambrick planned to discuss the matter with his board.

On Jan. 5, 6 and 7, Mr. Sokol accumulated nearly 100,000 Lubrizol shares.

Soon after, Mr. Sokol suggested a Lubrizol deal to Mr. Buffett, who was initially cool to the idea.

When Mr. Buffett asked Mr. Sokol what started his interest in Lubrizol, Mr. Sokol said he owned the stock.

Mr. Sokol did not disclose that he bought the shares only after Citi pitched the company as a potential takeover target. And Mr. Buffett did not ask about the extent of his stake in the company.

The details of Mr. Sokol’s purchases — and Citi’s involvement in the deal — were not known until a bank representative told Mr. Buffett after the deal was announced on March 14.

“This was the first time Mr. Buffett heard that investment bankers played any role in introducing Lubrizol to Mr. Sokol, and did not square with Mr. Sokol’s remark in January that he had come to know Lubrizol by owning the stock,” the report said.

The report did not take Mr. Buffett to task for failing to press Mr. Sokol for additional details. Some analysts and corporate governance experts have criticized Mr. Buffett for trusting Mr. Sokol’s original account of the situation.

“It did not cross Mr. Buffett’s mind at that time that Mr. Sokol might have bought Lubrizol shares after seeking through investment bankers to initiate discussions with Lubrizol concerning a possible Berkshire Hathaway acquisition of Lubrizol,” the report said.

Shortly before Berkshire publicly disclosed Mr. Sokol’s resignation, he had one last chance to set the record straight.

Mr. Buffett allowed Mr. Sokol to edit for accuracy an advance copy of the press release announcing his resignation.

Mr. Sokol deleted only one sentence that implied that he resigned because the Lubrizol trades would hinder his chances of succeeding Mr. Buffett.

Mr. Sokol, according to the report, said the sentence was inaccurate.

Berkshire Hathaway audit report

Statement from Barry W. Levine, lawyer for David Sokol

I am profoundly disappointed that the Audit Committee of Berkshire Hathaway would authorize the issuance of its report to the public without the care and decency to ask even a single question of Mr. Sokol. Mr. Sokol had been associated with the Berkshire Hathaway companies for 11 years. During this time, his indefatigable efforts helped create enormous value for the Berkshire shareholders. He deserved better. While I take issue with much of the Committee’s report, I briefly make the following points. If the Audit Committee had asked, it would have learned that:

Mr. Sokol had been studying Lubrizol for personal investment since the summer of 2010; such investments are specifically allowed by his employment agreement.

Mr. Buffett was told twice, not once, about Mr. Sokol’s ownership of Lubrizol stock before Mr. Buffett engaged in any discussions with Lubrizol.

Contrary to the Audit Committee’s statement, Mr. Sokol’s Lubrizol shares were not acquired pursuant to a “100,000 limit order.” Rather, they were purchased as a result of several limit orders, over a period of days, at specified prices, for the day only, in order to acquire the stock at low prices. At that time, Mr. Sokol had no reason to anticipate that Mr. Buffett would have any interest whatsoever in Lubrizol.

I have known Mr. Sokol and have represented his companies in business litigation since the mid 1980s. I know him to be a man of uncommon rectitude and probity. He would not, and did not, trade improperly, nor did he violate any fair reading of the Berkshire Hathaway policies.

Article source: http://feeds.nytimes.com/click.phdo?i=250220d9aa66a12729f036d13519824d

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