DealBook, What’s Next After the Barclays Settlement, here. Ok, it turns out the risk free rate was even riskier than AA unsecured interbank lending in several ways. NYT looking to see if some of that risk will jump the pond. This is another example of why code is so very much better than data.
The settlement by Barclays over accusations that it manipulated the benchmark London interbank offered rate, or Libor, is like the first crack of thunder signaling a coming storm; the question now is how big the storm will be.
Matt Taibbi, Why is Nobody Freaking Out About the LIBOR Banking Scandal? here. Taibbi is certainly looking to get some of the Libor risk state side. Taibbi does not care about the data, he’s more of users advocate, I guess. Maybe advocate is the wrong word. Pretty sure, he wants some of the users to go to Rikers Island and some to just carry on reading The Rolling Stone.
Anyway, the LIBOR story is leading the front pages of most of Britain’s dailies, it’s on TV, and it’s producing blistering editorials and howls of outrage amongst politicians and activists. But as compadre Yves Smith at Naked Capitalism put it, where’s the outrage here in America?
Naked Capitalism, Liborfest links 3 Jul, here and 4 Jul, here. Yves Smith is sanguine about Treasury’s chances today. Naked Capitalism is scouring the web for Libor links. See also from 3 Jul Mirabile Dictu! Barclays CEO Bob Diamond Resigns Over Libor Scandal (Updated), here. There is blood in the water, but we have seen time and again Rates doesn’t have the same pull on the public attention as Domestic Retail Equity. Joe and Suzy Sixpack might track FB news a bit but Euribor, not so much.
Liborfest! And sadly, I’m going to be on a plane when the Treasury hearings are on. If readers can point to live feeds (for those Libor junkies, some have written asking for leads) and any sites that have either the recording for later viewing or a transcript, that would be very much appreciated.
In general, I’d not bet on an American CEO when matched against Oxbridge educated regulators. Just the British mastery of the language puts Yanks at a disadvantage. And they aren’t used to the more direct style of questioning either.
John Carney, CNBC, Business Insider, here. Reports that NY BarCap folks push Diamond off the ledge because they did not want another Dick Fuld.
Senior investment bankers in New York began to organize a coup on Monday. Several met in the New York offices, which were formerly the offices of Lehman, to figure out a strategy to force Diamond to step down.
The main obstacle they faced, many believed, is that the London-based board might not respond favorably to demands from New York-based investment bankers. Some feared it could be seen as a Lehman plot against the Barclays management.
“This was bringing up a lot of old wounds still festering from the acquisition,” a person familiar with the situation said.
Some in New York believed that the damage to the bank’s reputation if Diamond had stayed on would have been lethal.
“We’re just recovering from the Dick Fuld fiasco,” one senior investment banker said, referring to the Lehman CEO who presided over the firm’s collapse in 2008. “We couldn’t have another out of touch executive at the top.”
Joe Weisenthal, Business Insider, Barclays Nukes The Bank Of England, And Basically Accuses It Of Being Behind Their Interest Rate Manipulation, here. Do not mess with the Queen after the Jubilee.
Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier. Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high and he therefore passed down a direction to that effect to the submitters.
Matt Levine, DealBreaker, Maybe Bob Diamond Manipulated Libor For Queen And Country? here. I’m putting a buck on Levine’s take here, its the bromail and P&L that threatens to turn this into a full out frenzy. That might answer Taibbi’s question on why the risk doesn’t jump the pond so quickly. You gotta find the bromails.
My own guess is that Barclays wouldn’t be such a piñata if that was all it had done: if it had lied about Libor just to boost confidence in itself, with perhaps a nudge-and-wink assist from the BoE, there might well be a shrug of “well everyone kind of knew that.” (Certainly the BoE did; Mervyn King went around saying that Libor was “the rate of interest at which big banks don’t lend to each other,” which I’m sure he regrets a bit now.) Propping up confidence in a bank’s viability, even dishonestly, is a venial sin – as long as the bank remains viable.
The problem for Barclays was that its traders also manipulated Libor not to preserve confidence in the bank and the banking system, but to boost the P&L on their own trades. That sort of outright zero-sum fraud, documented in voluminous terrible emails, is harder for regulators and the public to tolerate. The irony is that those manipulations probably didn’t have all that much effect, relatively speaking: they were on the order of a half basis point every now and then (er, every day, whatever), and more crucially Barclays’ traders at least thought they were shooting against other banks manipulating Libor the other way. So the net effect on rates may have been small. Whereas in the depths of the financial crisis, Barclays was pushing down its submissions to be “in the middle of the pack” at the same time that other banks had incentives to do the same, and probably did. “Everybody’s doing it” then made the problem worse, not better – though it might also have made it easier to forgive.
Felix Salmon, Defiant Barclays, here. The Queen is not amused.
The resignation of Bob Diamond notwithstanding, it seems that Barclays is sticking to its scorched-earth, if-we’re-going-down-we’re-taking-you-with-us strategy. In its submission to the UK parliament in the run-up to Bob Diamond’s testimony tomorrow, Barclays is very aggressive and not at all contrite.
Can Barclays be salvaged? here. Setting the snark to 11.
I suspect the best bet for Barclays’ board and its new CEO, whoever that turns out to be, will be to get out in front of Vickers, and make a virtue out of necessity. Ringfence all the UK retail-banking operations and turn them into a boring utility. Then take everything else, including the whiz-bang traders and investment bankers, and list them as a separate company, most likely in the US, which can take on as much risk as its regulators allow it to. I believe the LEH ticker is still available.
Izabella Kaminska, Alphaville, Euribor has been vaporized, here.
Not our words, but those of Richard Comotto of the European Repo Council.
In case readers are not familiar with Mr Comotto, he’s the author of the ICMA’s semi-annual survey of the European repo market — probably the best (if not the only) overview of the repurchase market in Europe.
Comotto’s job involves interviewing repo market participants throughout the year, in a bid to try and understand what’s really going in the repurchase world.
The reason his study is so valuable, meanwhile, is because nobody else really does the same thing, and statistics remain hugely scarce in the market.
Barcap, Supplementary information regarding Barclays settlement with the Authorities in respect of their investigations into the submission of various interbank offered rates (AMENDED), here. Looks to me like they are going with Society is to blame.
The structure of the material that follows is intended to provide a framework through which to interpret the various events. To aid that, it also includes:
A chronology covering the four issues examined by the investigating authorities. This is important to avoid the issues being conflated and confused. It is particularly important to recognise that the trader conduct was separate from the conduct during the credit crisis and characterised differently by the Authorities. The actions of the traders were regarded as an attempt to manipulate ultimate reference rates. The actions of Barclays during the credit crisis were not.
A timeline summary of the principal documented contacts between Barclays and the Authorities during the financial crisis period relating to LIBOR submissions. We believe that this chronology shows clearly that our people repeatedly raised with regulators concerns arising from the impact of the credit crisis on LIBOR setting over an extended period.
A graph showing our 3 month USD LIBOR submissions relative to others during periods of the crisis and the occasions on which our submissions were excluded from the rate setting process as too high.
WSJ, Market Watch, Barclays says BOE, Fed knew of Libor concerns, here.
On a day when both the chief executive and chief operating officer of Barclays PLC resigned over an interest-rate fixing scandal, the U.K. bank released its own version of events and suggested Tuesday that Bank of England and Federal Reserve officials were well aware of the issue.