Bank of England about to be dragged in Liborgate mess ? If so , that might explain why Governor King is loathe to have a public inquiry...

http://www.telegraph.co.uk/news/politics/9369042/Bank-of-England-dragged-into-rate-rigging-row.html

By Rowena Mason and Phillip Aldrick

9:50PM BST 01 Jul 2012

Comment

Bob Diamond had a conversation with Paul Tucker about how much Barclays was claiming it had to pay to borrow money during the financial crisis in 2008.

After Mr Diamond spoke to Mr Tucker, Barclays staff came to believe the Bank of England wanted them to falsify this data — which was used to calculate Libor, the interest rate that banks pay to each other.

The bank’s traders then escalated their secret attempts to manipulate the markets and make it appear that the bank was paying less to borrow money than was actually the case, documents show.

Last night sources at both banks insisted this was the result of a “misunderstanding”. They insisted that Mr Tucker had not sanctioned Barclays’ actions.

At the time the Bank of England was keen to see a lower Libor rate, as that would have been a positive sign in the depths of the credit crunch.

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The disclosure increases the pressure on Mr Diamond, who has now been put at the heart of discussions about the fixing of Libor. When he gives evidence to MPs this week the bank chief will also have to explain why his employees were left with the understanding that they were acting with the Bank of England’s blessing.

Last night, the scandal claimed its first scalp among the senior management of Barclays, as the bank confirmed Marcus Agius, its chairman, was set to resign.

Lord Turner of Ecchinswell, the head of the Financial Services Authority, said “more heads will roll” at badly behaving banks in future.

As the board of Barclays called an emergency meeting last night, there were calls for a criminal inquiry into the bank by Vince Cable, the Business Secretary, and Lord Blair of Boughton, the former Metropolitan Police commissioner.

Mr Diamond is also facing calls to step down over his failure to spot the scandal, which may have caused banks to charge mortgage holders, credit card users and businesses too much for billions of pounds in loans.

Barclays was last week fined £290 million for its role in the affair. Other high street banks are expected to face heavy penalties for similar wrong-doing.

Mr Diamond is likely to face calls to issue a full apology when he is questioned by Parliament’s Treasury committee on Wednesday. Sources confirmed he would be asked exactly what he talked about with Mr Tucker, the second most senior figure in the Bank of England, during the crucial phone call about Libor in October 2008.

MPs will be especially keen to know how a confused message was passed on to Barclays traders, who ended up “escalating” the rate-rigging scandal soon afterwards.

Although the bank chief may have to give evidence under oath, he is expected to stonewall many questions for legal reasons.

John Mann, an MP on the Treasury committee, said Mr Diamond would face tough questions about the conversation. “I’m certain that issue will come up and that it will be raised directly,” he said.

“We will certainly want answers as to if Bob Diamond has been hands-on and it will be surprising if he wasn’t. We want to know exactly what he was doing.”

Both Barclays and the Bank admit that a conversation took place about Libor but deny there was any instruction to lower the rate. They claim that traders misunderstood directions from their superiors about how they should deal with Libor.

The Financial Services Authority accepted the explanation that instructions from the bank’s executives were misinterpreted by more junior employees.

“No instruction for Barclays to lower its Libor submissions was given during this telephone conversation,” the FSA said.

“However, as the substance of the telephone conversation was relayed down the chain of command at Barclays, a misunderstanding or miscommunication occurred. This meant that Barclays’ submitters believed mistakenly that they were operating under an instruction from the Bank of England as conveyed by senior management to reduce Barclays’ Libor submissions.”

US regulators believe that a member of Barclays’ senior management team was responsible for the message that the bank’s data needed to be lower.

One trader emailed his boss at the time to say: “Following on from my conversation with you I will reluctantly, gradually and artificially get my Libors in line with the rest of the contributors as requested. I disagree with this approach as you are well aware. I will be contributing rates which are nowhere near the clearing rates for unsecured cash and therefore will not be posting honest prices.”

At the time of Mr Diamond’s conversation with Mr Tucker, the Bank of England was keen to see Libor reduced, as a higher rate was a sign that the credit crunch was strangling lending between the banks.

However, the Bank of England last night insisted it was “nonsense” to suggest that it was aware of any impropriety in the setting of Libor.

A spokesman added: “If we had been aware of attempts to manipulate Libor we would have treated them very seriously.”

Several other companies are also expected to settle with the regulators, after George Osborne, the Chancellor, disclosed that the Royal Bank of Scotland was among the dozen banks or so under investigation.

It emerged over the weekend that RBS has sacked up to 10 traders in connection with Libor fixing.

and.....


http://www.zerohedge.com/news/bank-england-about-be-dragged-lie-borgate-and-which-us-bank-next

Is The Bank Of England About To Be Dragged Into Lie-borgate, And Which US Bank Is Next

Submitted by Tyler Durden on 07/01/2012 11:42 -0400

• Bank of America
 
• Bank of America
 
• Bank of England
• Barclays
 
• Bob Diamond
 
• BOE
 
• Borrowing Costs
• British Bankers' Association
 
• Central Banks
• Commodity Futures Trading Commission
 
• Deutsche Bank
 
• Jim O'Neill
 
• LIBOR
 
• Market Manipulation
• Mervyn King
 
• Nationalization
 
• RBS
 
• Reality
 
• Swiss National Bank
 
• TED Spread
 
• United Kingdom

While the Lieborgate scandal gathers steam not so much because of people's comprehension of just what is at stake here (nothing less than the fair value of $350 trillion in interest-rate sensitive products as explained in February), but simply courtesy of several very vivid emails which mention expensive bottles of champagne, once again proving that when it comes to interacting with the outside world, banks see nothing but rows of clueless muppets until caught red-handed (at which point they use big words, and speak confidently), the BBC's Robert Peston brings an unexpected actor into the fray: the English Central Bank and specifically Paul Tucker, the man who, unless Goldman's-cum-Canada's Mark Carney or Goldman's Jim O'Neill step up, will replace Mervyn King as head of the BOE.

From the BBC:

In making false submissions about their borrowing costs, managers at Barclays believed they were operating under an instruction from Paul Tucker, deputy governor of the Bank of England, I have learned.

This belief was fostered after a telephone conversation in the autumn of 2008 between Mr Tucker and Bob Diamond, who at the time ran Barclays' investment bank, Barclays Capital, and is today chief executive of Barclays.

The heart of the matter is that in 2008, at the height of the credit crunch, the perception of banks' financial strength was linked to how much they had to pay to borrow. Barclays managers were very worried that the appearance of the bank paying more to borrow than other banks was damaging confidence in its health.

So Barclays so-called "submitters", the managers who gave borrowing data to the British Bankers Association's Libor-setting committees, consistently told these committees that Barclays was paying a lower interest rate to borrow than was actually the case.

And what is striking is that after their conversation took place, senior Barclays' management on October 29 2008 gave an explicit instruction to reduce Libor submissions.

We hope it comes as no surprise to anyone that central banks, already known to sell Treasury puts in order to game interest rates on global benchmark securities, would go so far as to advise BBA member (which as noted last week was shocked to find that epic manipulation was going on here) banks to do all in their power to lie and cheat to the market in order to avoid the perception of reality.

Yet here is the punchline in Peston's piece:

What is striking is that even the artificially suppressed quotes for Barclays' borrowing costs provided to the BBA committee were higher than other banks' quotes.

Which conveniently brings us once again to our piece from January 22, 2009 when the market was crashing every single day, when the world's central banks would do anything to halt the collapse in risk and asset prices, up to an including telling their host banks to lie about funding conditions, before the real QE1 was announced back in the middle of March, in which we made just this speculation.

Everyone knows there is something very screwy about LIBOR, with opinion ranging from it's way too high to the opposite. We also have been quite vocal in our opinion of the TED Spread but that's irrelevant for the time being. Lately we have been looking at the most recent BBA data for the 3 month LIBOR submission by bank and while the average is 1.122%, the range is quite wide: 1.04% at the tight end to 1.204% at the wide. What confuses us is that the banks that submitted the lowest rates are the ones that have the most governmental independence, notably BofA and JPM, while the other end of the range is represented by pseudo nationalized banks such as RBS, in which the UK government recently acquired a 70% stake, and UBS, which had all of its bad assets swept by the Swiss National Bank in exchange for a loan (read more about the Swiss model here).

The implication is that with more governmental involvement or even virtual nationalization, the cost to lend to another bank creeps higher, when compared to entities such as BofA and JPM which still, at least theoretically, carry all their bad assets on their books. This intuitively is very confusing as the cheapest LIBOR should come from the nationalized entities, that have a full governmental backstop.

So while LIBOR's moves in itself have been very puzzling lately, the components of LIBOR and their relative values provide an additional layer to the puzzle.

Three and a half years later the puzzle is no more: it was all one big epic fraud, pardon, no fraud, as the CFTC and SEC settlements never admitted or denied fraud. Let's just call it benign market manipulation of a $350 trillion market.

But what the table above brings up are some curious observations: note the banks that in the middle of January were telegraphing to the world they were the healthiest via the one metric that was actually still relevant: 3 Month USD funding costs.

We already know that Barclays has been exposed to be manipulating Libor on an epic scale. And even with all this, it still could manage to only be in the third best quartile? If they were manipulating their Libor submissions they sure sucked at it. Which of course is why even the BOE got involved.

However, it begs the question: what about the Libor submissions of the three then "healthiest" banks: Bank of America, JP Morgan and Deutsche Bank. If Barclays was manipulating and gaming Lie-bor, only to fall even below the median submission, does this mean that these three banks were all furiously coming up with totally meaningless numbers? And how long until the SEC comes up with a US scapegoat bank to mimic the FSA's bold action on Barclays?

If, and this is a big if, the SEC does for once do something proactive in its illustrious career of corrupt, incompetent complacency and co-option, not to mention pornoholic hypnosis, the next and final question becomes: will it be Bank of America, or JP Morgan... and just how will the market react to the knowledge that two of the world's biggest non-nationalized banks participated in what as many have been warning for years, the biggest market manipulation fraud in history.

Finally, if the BOE ends up getting crucified for Barclays' stunning email disclosure, will the Fed, which certainly had a role to play in all of this, be once again left untouched?

and now we can see why BOE Governor King might not want a public inquiry..... 

http://www.guardian.co.uk/business/2012/jun/29/mervyn-king-banks

Mervyn King tells banks: you can't go on like this

Governor's scathing attack on industry's culture of excess as new scandal erupts

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• Larry Elliott, Jill Treanor and Nicholas Watt in Brussels
• guardian.co.uk, Friday 29 June 2012 18.50 EDT

Sir Mervyn King, the governor of the Bank of England, piled the pressure on the City on Friday when he said something had gone "very wrong" with Britain's banks that needed to be put right.

As Barclays and other high street banks became embroiled in a new mis-selling scandal, King launched his most scathing attack yet on the culture of banking in the five-year-long financial crisis.

King refused to say Bob Diamond was a "fit and proper" person to run Barclays as the reputational damage from an interest rate-fixing fine led to another fall in the bank's shares. More than £4bn has been wiped off the value of the bank since the rate-fixing scandal emerged.

"It is time to do something about the banking system," King said. As he warned that the outlook for financial stability had deteriorated as a result of the eurozone crisis, he dismissed mounting calls for a Leveson-style investigation into banks, saying that enough was already known to implement root and branch reform of the City.

But Ed Balls, the shadow chancellor, said an inquiry was needed. He said: "The governor is right to say that there is a real cultural problem in our banks which these latest scandals expose, and I don't think it is right for government ministers – or for the governor, actually – to say we have had enough inquiries."

King said: "Many people in the banking industry are hardworking and feel badly let down by some of their colleagues and leaders. It goes to the culture and the structure of banks: the excessive compensation, the shoddy treatment of customers, the deceitful manipulation of a key interest rate, and today, news of yet another mis-selling scandal."

Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland were ordered by the Financial Services Authority (FSA) to pay redress to small business customers after it found "serious failings" in the way they were sold complex financial products intended to protect them from interest rate rises. The revelations caused outrage among business groups, with the Institute of Directors, the British Chambers of Commerce and the CBI all condemning the fleecing of their business members. John Longworth, director general of the BCC, said the latest scandal would "damage business's perception of banks further".

Yesterday, the RBS chief executive Stephen Hester bowed to pressure caused by the continuing row about the computer meltdown that left some customers unable to access their accounts by forgoing a bonus of up to £2.4m for 2012.

However, the pressure on Diamond is even greater, but the Barclays boss has made it clear he will not voluntarily step down. The bank's chairman, Marcus Agius, is also in the line of fire and may be forced out in an attempt to show that a boardroom executive is paying the price for the record-breaking £290m fine and damage to the bank's reputation. Barclays shareholders are thought to be considering appointing a figurehead to conduct a review of the culture inside the bank.

The political pressure continued to mount on Diamond. Asked whether he was the right man to lead Barclays, David Cameron said: "I can't say that. He has questions to answer."

The prime minister's remarks mirrored those of King and Lord Turner, chairman of the FSA, who both twice declined the opportunity to say that Diamond was "fit and proper" to run Barclays.

Barclays was fined a record £290m on Wednesday for attempting to manipulate crucial interest rates known as the London interbank offered rate (Libor) and the Euro interbank offered rate (Euribor), both of which are crucial in setting the price at which customers borrow for mortgages, between 2005 and 2009.

The fine was published alongside a series of emails showing how traders helped each other to try to manipulate interest rates with promises of champagne and quips like "this is for you, big boy".

Sir Roger Carr, president of employers' body the CBI, said: "The manipulation of the Libor arrangements is deplorable and undermines international trust in the integrity of the City. The weakness must be addressed and the culprits punished."

King said the question of who ran the UK's banks was a question for another day, insisting that the immediate priority was for the government to implement in full the recommendations of the Independent Commission on Banking, headed by Sir John Vickers, which called for firewalls to be set up between the investment and retail arms of banks. He said the cultures of investment and retail banking were different and needed to be separated.

Turner said that there was a "culture of cynicism and greed that is quite shocking". Andrew Bailey, the top banking regulator at the FSA, said the onus was on bank boards to take action. "If, as we now see, there is a fundamental breakdown in trust, the bank boards have to recognise that trust has to be got back and they have to think very hard about how they do that," he said.

The prime minister agreed with King's calls for a cultural change in banking. "We know what's gone wrong and largely we know what needs to be done to put it right. What you are going to see from the government is an incredibly methodical series of actions to deal with all of these problems," he said as he rejected the call by Balls for a Leveson-style inquiry.

"People are shocked by the swaggering arrogance of what we have discovered in the last 24 hours. We really need to open this wide open," said Balls. Knowing he was opening himself up to a political backlash as he was City minister for part of the Labour government's time in office, Balls admitted mistakes had been made.

Lord Oakeshott, the Liberal Democrat peer, said Balls and the former prime minister Gordon Brown would need to be the first two witnesses called to give evidence.