Is Barclays LIBOR Settlement Hatching Institution’s Rebirth?

Is Barclays LIBOR Settlement Hatching Institution’s Rebirth?

At one time the sun never set on the British Empire. Now it appears the sun won’t be setting soon on Barclays Bank’s efforts to rehabilitate its image.

A quick scan of the Barclays’ website reveals the Bank’s rehab plan is being carefully controlled, unlike the damaging employees’ emails that made headlines earlier this summer.

On July 2, just five days after Barclays entered into a settlement with U.S. and British authorities admitting some of its swap traders and traders at other banks manipulated LIBOR and EURIBOR benchmark interest rates, the bank announced an independent review of its business practices.

The following day, Barclays announced its chief executive, Bob Diamond, was stepping down and voluntarily relinquishing all of his bonuses.

On July 14, the Bank issued an open letter to customers and clients saying it was “truly sorry for what has happened and that you have been let down.”

The six-sentence letter goes on to promise the Bank will do better. “It is our actions now and over the coming months and years that will make the difference. You are the lifeblood of our business, and we will not allow ourselves to be distracted from what really matters—delivering for you, day in and day out.”

Barclays’ Chairman Marcus Agius signed the letter. He is leaving the Bank.

“Independent Review”

On July 24, the Bank announced it will “establish an independent review of its business practices.” Rothschild Executive Vice Chairman Anthony Salz is leading the review. Before joining Rothschild in 2006, Saltz was a senior partner with Freshfields Bruckhaus & Derringer.

Last month Barclays agreed to pay $160 million to the United States and $94 million to the British government in fines relating to the manipulation of the LIBOR.

Barclays entered into a non-prosecution settlement with the U.S. Department of Justice. Barclays swap traders requested that certain Barclays’ LIBOR and EURIBOR submitters make rate submissions that would “benefit the traders’ trading positions, rather than rates that complied with the definitions of LIBOR and EURIBOR,” according to the Bank’s agreement with the Justice Department.

The U.K. Financial Services Authority (FSA) issued a final notice outlining the Bank’s violations and issued a fine. The final notice says the Bank “acted inappropriately . . . by making LIBOR submissions which took into account concerns over the negative media perceptions of Barclays’ LIBOR submissions.” Keeping up appearances was very important to Barclays during the 2008 financial crisis, according to the Authority.

“Liquidity Issues”

“Liquidity issues were a particular focus for Barclays and other banks during the financial crisis and banks’ LIBOR submissions were seen by some commentators as a measure of their ability to raise funds. Barclays was identified in the media as having higher LIBOR submissions than other contributing banks at the outset of the financial crisis. Barclays believed that other banks were making LIBOR submissions that were too low and did not reflect market conditions. The media questioned whether Barclays’ submissions indicated that it had a liquidity problem,” according to the FSA.

“Barclay senior managers were concerned about the negative publicity and that in turn resulted in instructions being given by less senior managers at Barclays to reduce LIBOR submissions in order to avoid negative media comment,” the FSA wrote.

Unfortunately, the efforts to keep up appearances and avoid “negative publicity” backfired with damaging emails confirming Barclays’ Dollar swap traders in New York and London requesting favorable Dollar LIBOR contributions to the Bank’s submitters on the London money markets desk.

Samples of the emails in both governments’ documents raised eyebrows and made for interesting news copy for the international media.

“The Big Day”

Here is one example of an email dated March 13, 2006:

Trader C: The big day [has] arrived … My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?

Submitter: I am going 90 altho 91 is what I should be posting.

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 not be in any book!

The FSA investigation found 173 requests for U.S. dollar LIBOR submissions were made to Barclays’ Submitters and 11 requests were based on communications from traders at other banks. Requests for EURIBOR submissions totaled 58 and were made to Barclays’ Submitters including 20 requests based on communications from traders at other banks. Approximately 26 requests for yen LIBOR submissions were made to Barclays’ Submitters.

The requests were made by approximately 14 Barclays derivatives traders and included senior traders. The FSA pointed out trading-desk managers “received or participated in inappropriate communications” on several occasions.