How Barclays Lost Its Head

By Ferguson, Niall | Newsweek, July 16, 2012 | Go to article overview

How Barclays Lost Its Head


Ferguson, Niall, Newsweek


Byline: Niall Ferguson

In the latest bank scandal, London's loss is Asia's gain.

Trader B: Who's going to put my low fixings in? heh heh heh.

Submitter: [X or Y] will be here if you have any requests for the fixings.

Trader C: ... Thank you for your help in the past few weeks.

Submitter: Done ... for you, big boy.

Trader C: ... When I retire and write a book about this business, your name will be written in golden letters ...

Submitter: I would prefer this [to] not be in any book!

These exchanges between employees of the venerable British bank Barclays tell you much about the culture of the City of London on the eve of financial destruction. They come from emails dating back to 2005 and 2006, and they document the repeated efforts by the bank's traders to get their colleagues to rig the interest rate known as LIBOR (the London Interbank Offered Rate).

The emails clearly reveal that those concerned knew they were transgressing. So there was every reason for the regulators on both sides of the Atlantic to whack Barclays with fines totaling $453 million.

Had the LIBOR scandal been an isolated incident, the chief executive of Barclays, Bob Diamond, might just have survived. His counterpart at Goldman Sachs held onto his job despite the imposition of a comparably large fine by the Securities and Exchange Commission in 2010. But coming as just the latest in a succession of revelations of sharp practice and/or mismanagement at British financial institutions, "Liborgate" proved fatal not only to Diamond but also to the Barclays chairman and the bank's chief operating officer.

Few readers of this column, I suspect, will previously have heard of LIBOR, so let's begin there. What the hell is it?

Since the mid-1980s, a variety of interbank borrowing rates?for different periods and in different currencies--have been set in London on a daily basis under the auspices of the British Bankers' Association. The rates are set at meetings of representatives of the major banks, who state the rates at which they believe their institutions could borrow from other banks. Out of 16 figures, the top four are ignored and so are the bottom four: LIBOR is the average of the middle eight figures.

So far, so arcane. Note: the banks' representatives are supposed to give the rate they really think their employers could borrow at, but in the absence of emails like the ones quoted above, I know of no way--apart from a lie detector--to be sure they are not over- or understating the figure at the behest of their trader colleagues. …

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