Diamond feared Barclays nationalization in 2008
LONDON (MarketWatch) -- Former
In a carefully choreographed performance, the 60-year-old dodged questions over how it was possible he wasn't aware of the attempted manipulation of the interbank lending rate, or Libor, by his top lieutenant at the bank.
He also rebutted that he had any knowledge that traders at the bank tried to rig the rates to pad the bank's profits until official investigations began. The revelations he said, "made me feel physically sick."
Much of the questioning from the panel of lawmakers focused on the ethics at the bank. Diamond was quizzed on issues ranging from his share award to the morality of selling complex financial products to a Turkish shopkeeper who spoke little English. The former executive was steadfast in his answers refusing to be drawn into a fight.
Instead, Diamond -- who left Barclays (BCS) (BARC) on Tuesday -- deflected questions onto other banks and the integrity of the rate-setting mechanism as a whole. In particular, he questioned how banks that had been part nationalized at the height of the crisis claimed they were borrowing at a lower rate than Barclays. This, he said, became critically important as Barclays looked to raise capital from Middle Eastern investors in 2008.
"If Whitehall was told 'Barclays is at the highest of Libor' [the London interbank offered rate], they might say to themselves, 'My goodness, they can't fund, we need to nationalize them', as they had nationalized other British banks," said Diamond. "We were desperate. We had 6.7 billion pounds ($10.5 billion) of equity being raised, if rumors got on the market that we couldn't fund, then maybe we wouldn't have been able to complete the equity raising."
Last week, Barclays paid around $450 million to U.S. and U.K. regulators after it admitted trying to rig interbank lending rates. Following its chief executive's departure on Tuesday, Barclays published a note written by Diamond in 2008 suggesting that a top Bank of England official, under pressure from the U.K. government, may have tacitly encouraged the bank to lower its submissions to a panel that sets the London interbank lending rate.
"We can't sit here and pretend there wasn't an issue with Libor," said Diamond on Wednesday. "There was an issue out there and it should have been dealt with."
The Barclays submission has serious implications as it apparently suggests that U.K. regulators and the government -- concerned about financial stability -- had a role in events that led to attempts at rate-fixing by the bank.
The allegation has sparked a frenzy of finger pointing in U.K government circles over which mandarin encouraged the Bank of England to push banks to log artificially low rates.
U.K opposition Labour Party called for a judge-led inquiry into the banking sector.
Meanwhile, the government is plowing ahead with a narrower parliamentary inquiry into Libor.
The outcome could have important ramifications as the interbank lending rate was scrutinized during the 2008 financial crisis as a barometer of banks' health.
Diamond's Oct. 29, 2008, notes of a call between himself and Paul Tucker, a Bank of England financial stability official, in which the two discussed Barclays's relatively high submissions of the bank's borrowing rate, was at the center of today's testimony.
By Diamond's account, Tucker told him that he had "received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the Libor pricing."
After Diamond explained the bank's pricing, he said Tucker reiterated that the calls he was receiving from the government were "senior" and added that "while [Tucker] was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently."
According to the Barclays documents, Diamond didn't believe he received an instruction from Tucker.
However Jerry del Missier, then president of Barclays's investment bank, concluded that an instruction had been passed down from the Bank of England not to keep Barclays's rate as high. Del Missier left Barclays on Tuesday.
Tucker has said he wants give evidence before U.K lawmakers "as soon as possible."