A day after he insisted he had no intention of stepping down, Bob Diamond resigned as head of Barclays Bank effective immediately, bowing to pressure from lawmakers outraged over the manipulation of Libor rates on his watch. Questions arose over what regulators knew and when they knew it as reports of whistleblowers from within the bank itself surfaced, and political leaders promised a criminal investigation.
Bloomberg reported Tuesday that Diamond, CEO of Barclays, was the second to go after Chairman Marcus Agius tendered his own resignation on Monday. Agius was to remain in place to insure an orderly succession, and now he will become full-time chairman to search for a replacement for Diamond.
Other heads may roll as the scandal unfolds; COO Jerry del Missier, appointed only last month, may follow Diamond out the door, according to a Reuters report. Del Missier was reported to be close to Diamond, and to have helped his boss build up the Barclays Capital investment bank.
Diamond had insisted that he would remain to implement whatever reforms were necessary to erase the image of Libor rigging. But political pressure, according to a BBC report, became too great, and Diamond instead announced his resignation. In a statement, he said, “I am deeply disappointed that the impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth.”
Despite an emergency board meeting Friday night, during which it was decided that neither Agius nor Diamond need resign, Agius took it upon himself to become the focus of criticism of the bank and step down, said Robert Peston, business editor at the BBC.
But instead of quieting the storm, Agius’s departure had little effect and political leaders continued to call not just for Diamond’s departure but for broader investigations. Both Agius and Diamond are scheduled to testify before Parliament during the week.
Said Peston, “[O]ne Barclays source tells me [Diamond] felt hounded out by MPs. He felt the government’s planned parliamentary inquiry about standards in banking would be all about him, as would a longer judicial investigation demanded by Labour.”
But that wasn’t all, continued Peston; investors were out for blood as well: “[T]he price they were demanding for him to stay and clean up the bank was that he should surrender some of the vast rewards he had accumulated from a culture at the bank now acknowledged to be flawed—and which investors hold him partly responsible for.”
The price was high: “[E]ither a clawback of past bonuses and spoils from long-term incentive schemes, or the surrender of what he could earn from long term incentive plans that haven’t yet vested.” Peston cited the consultancy Manifest as estimating that toll at as much as 16 million pounds ($25.080 million).
“Diamond’s position had clearly become untenable,” Gary Greenwood, a banking analyst at Shore Capital, said in the report. “While the company says that it will consider internal and external candidates to fill the role of CEO, we believe that it is of paramount importance that an external appointment is made in order to clean up the image of the company.”
Christopher Wheeler, a London-based banking analyst at Mediobanca SpA, was quoted saying, “There comes a point in time when the board says enough is enough and it became very personal in terms of the criticism. It allows the bank to draw a line. The priority now is to find an appropriate chief executive who has not been affected by all this.”
Regulators in Britain may have missed or ignored opportunities to uncover the rigging scheme much earlier in its history. According to a Reuters report, Bank of England (BoE) and Financial Services Authority (FSA) officials and even the British Banking Authority (BBA) were told at least five times since 2007 that there were problems with the way the rate was set.
During a meeting in autumn of 2007 among officials from the BoE, the FSA and the BBA and executives from the world’s largest banks, attendees discussed the fact that Libor rates were lower than the actual rates at which banks borrowed money. The minutes said in part, “Libor indices needed to be of the highest quality given their important role as a benchmark.”
Regulatory documents filed last week by the Commodity Futures Trading Commission (CFTC) and the Justice Department in the U.S. and the FSA in the U.K. showed that questions about how Libor was set were discussed quietly even as the rate-fixing proceeded. According to the FSA, “individuals at Barclays raised concerns with the FSA, the Bank of England, the Federal Reserve Bank of New York and the BBA about the accuracy of Libor submissions.”
A BoE spokesman denied that the central bank had been at all aware of any manipulation, saying, “It is nonsense to suggest that the Bank of England was aware of any impropriety in the setting of Libor. If we had been aware of attempts to manipulate Libor, we would have treated them very seriously.”
Regardless of who knew what, British officials have launched a parliamentary inquiry and are also calling for criminal investigations. Prime Minister David Cameron announced the parliamentary inquiry into the U.K. banking industry on Monday, saying in the report, This committee will be able to take evidence under oath; it will have full access to papers, officials and ministers. It will be able to start immediately, it will be accountable to this house, it will be able to make sure we get to the truth quickly so this can never happen again.”
Chancellor of the Exchequer George Osborne said that the FSA would conduct an inquiry as well, and said that people had asked him that if “fraud is a crime in ordinary business, why couldn’t it be so in banking?”
Ed Miliband, leader of the opposition Labour Party, said the public wouldn’t be satisfied with “politicians investigating bankers” and called again for a broader, judge-led inquiry.