Diamond: I Am a Victim

Econintersect:  Robert Diamond, the deposed CEO of Barclays, testified before Parliament in London today (04 July 2012) and the review of his statements could be summarized as:  ‘I am sorry for the conduct of my institution but I was not aware of what was going on.’  The ‘quotation’ is an Econintersect summary and not a direct quote from Mr. Diamond.

The Wall Street Journal called the appearance a “carefully choreographed performance.”  Diamond also pointed at the practices of other banks, including those that were effectively nationalized during the crisis, as having more flagrant interest reporting distortions than Barclays.  The investigation is asking how fictitious rates came to be reported by Barclays to influence the calculation of LIBOR (London interbank overnight rates), rates used to benchmark commercial interest rates in many parts of the world, including the U.S., Canada and Switzerland.

The questions Diamond raised regarding other banks are summarized by the following from The Wall Street Journal:

…he questioned how banks that were part-nationalized during the height of the 2008 global financial crisis were able to claim cheaper borrowing costs than Barclays and said he feared the government would step in to take over part of his bank, too.

Diamond asserted the blame for any transgressions lay with Jerry del Missier, second in command at Barclays until Tuesday (03 July) and the most recent head of Barclays Capital, and with fourteen traders.

However, he also said that having one of the highest Libor interest inputs could have implied that Barclays was having trouble funding operations. A high rate implied more risk for the bank reporting it and could have restricted access to capital from investors at a time when Barclays was in the process of raising $10.5 billion (£6.7 billion) in new equity.

The dodging of blame for the action, while simultaneously admitting that purposely understating Libor rate interest was essential to the continued existence of the bank, seems to present a severe contradiction. An Econintersect paraphrased summary:  ‘It was necessary for our continued existence but I had nothing to do with it.’ (Again, these are not Diamond’s words, but an Econintersect interpretive statement.)

The disclosure yesterday of notes from a 2008 meeting of Diamond with Peter Tucker, deputy governor on the BOE (Bank of England, the UK central bank) and currently candidate to replace Mervyn King as Governor, was reported early this morning by GEI News. This meeting occurred at a time when Diamond was head of Barclays Capital investment banking unit, the very unit he now blames for responsibility for the reporting scam. The 2008 meeting notes raise questions about the possible collusion between Diamond and Tucker to report fictitious interest rates to the BBA (British Bankers’ Association) for inclusion in the LIBOR rate calculations.

The breadth of involvement in this scandal is still completely clouded, as summarized in this from CBS News:

What’s unclear is whether the Bank of England was encouraging market manipulation to make Barclays look better and whether the government did likewise. Also unclear is whether Diamond’s deputy, Jerry del Messier, was alone in misconstruing the note as an instruction. Who understood what, and when, and why remains a matter of interpretation. Diamond was unclear whether a Labor minister, Shriti Vadera, had been involved in discussions about LIBOR and one of the key hanging questions in this affair remains how far the regulators were implicated and how far the government too was involved.

Editorial note: As the self-contradictory statements and inferences continue to pile up, the question asked by Shah Gilani becomes ever more pressing: “Why aren’t LIBOR manipulating banksters in prison?” Imagine how almost any jury would react to a prosecutor’s summary statement:

The accused says he knew nothing about the lies but also knew that they were required for the survival of his bank. Which part of that contradiction do you believe?

John Lounsbury

Sources:

• Diamond Ducks in Parliament, Points to Other Banks (Max Colchester, Jason Douglas and Ainsley Thomas, The Wall Street Journal, 4 July 2012)

• British Parliament grills Barclays ex-CEO Diamond (Margaret Heffernan, CBS News, 04 July 2012)

• Did Bank of England Have a Hand in Libor Fixing? (GEI News, 04 July 2012)

• Why Aren’t LIBOR Manipulating Banksters in Prison? (Shah Gilani, GEI Opinion, 03 July 2012)