Former Barclays Plc (BARC) Chief Executive Officer Robert Diamond offered to return to U.K. Parliament to challenge lawmakers who said he wasn’t telling the truth about the bank’s relationship with regulators.
“The comments made at today’s hearing have had a terribly unfair impact upon my reputation, which is of paramount concern to me,” Diamond said in a letter yesterday evening to Andrew Tyrie, chairman of the Treasury Committee. “I look forward to discussing this issue with you further if you wish to do so.”
Lawmakers accused Diamond, 60, of misleading Parliament when he didn’t disclose criticism from the Financial Services Authority that Barclays exhibited “a pattern of behavior” in an attempt to exploit accounting loopholes and game regulations. FSA Chairman Adair Turner said in an April letter to Barclays Chairman Marcus Agius that trust had been eroded by the bank’s approach to tax, regulation and accounting.
Turner’s letter revealed pressure had been building on Diamond for years before the bank’s admission that it attempted to manipulate the London interbank offered rate, the global benchmark for $360 trillion of securities. The letter cited concerns the FSA had about Barclays’s methods to meet regulatory capital requirements.
The Libor fine was “the straw that broke the camel’s back,” Gary Greenwood, a banking analyst at Shore Capital Group Ltd. in Liverpool, England, said in an interview. “They’ve been gunning for Barclays for a while and looking for an excuse and this is it.”
In his letter to Tyrie yesterday, Diamond said he was only asked by the committee about the period from September 2010 to February 2012. He wasn’t asked about the April correspondence or a meeting between Turner and Agius that month, Diamond wrote.
Andrew Bailey, the FSA’s head of banking supervision, discussed the concerns over London-based Barclays’s “aggressive” interpretation of regulation and use of accounting ploys at a Barclays board meeting on Feb. 9, Turner said in the letter.
“It’s the level of seniority and the language in the letter that show the FSA’s concerns,” Ian Mason, a former director of the regulator’s enforcement division and now an editor at the Practical Law Co., said in an interview. “The FSA chairman is a busy guy -- he’s not going to be writing to the CEOs of all the firms.”
A Barclays spokesman declined to comment yesterday. Barclays’s shares closed down 1.4 percent at 164.65 pence in London trading, giving the company a market value of 20.1 billion pounds ($31.2 billion).
Ex-Chief Operating Officer Jerry Del Missier will testify to lawmakers on July 16, the Treasury Committee said today.
Diamond was asked repeatedly about the bank’s relationship with the FSA at a Treasury Committee hearing on July 4, a day after he resigned as CEO. Barclays was fined a record 290 million pounds June 27 for attempting to rig interest rates.
The U.K.’s highest-paid bank CEO didn’t mention the FSA’s criticisms as detailed in Turner’s letter. The bank’s management was “something they were specifically happy with,” Diamond testified.
“Didn’t they tell you that trust is breaking down between the FSA and Barclays?” Tyrie, the committee chairman, asked.
“I don’t recall that in the February meeting,” Diamond said.
“Didn’t they tell you that they no longer have confidence in your senior executive management team?” Tyrie asked.
“No, sir,” Diamond said.
“Wasn’t all this fronted up with a letter?” Tyrie asked, before the Turner letter was released to the public. Diamond replied that the FSA raised that there “were some culture issues” and some “push back” from the bank on certain discussions with the regulator.
“Diamond lied to the committee,” David Ruffley, a committee member from the U.K.’s ruling Conservative Party, said at yesterday’s hearing. John Mann, a fellow committee member and lawmaker from the opposition Labour Party, said Diamond should be recalled to give more evidence.
British lawmakers’ power to punish people they conclude have misled them is unclear. Parliament’s Standards and Privileges Committee is still considering what action to take against three former News Corp. executives whom the Culture Committee concluded misled it over phone-hacking. Historical powers to jail people guilty of contempt of Parliament haven’t been used in more than a century.
Diamond resigned “because it became clear he lost the support of his regulators,” Agius said in the Treasury Committee hearing yesterday. Agius recounted how he met with Bank of England Governor Mervyn King at 6 p.m. on July 2, the day Agius himself announced his intention to resign.
King “was saying he had no power to direct us, but he felt it was sufficiently important for us to be told in absolute terms what the situation was,” said Agius, who subsequently called Diamond with the news. “The conversation was not long. He went to talk to his family. We were confident that he would make the right decision.”
Diamond was handed a “loaded revolver,” said Tyrie.
While Agius said he was “shocked” by King’s assertion, Turner’s April letter, which doesn’t mention Libor, reveals a breakdown in the relationship between Barclays and the FSA due to the bank’s attempts to boost capital.
“Barclays often seems to be seeking to gain advantage through the use of complex structures or through arguing for regulatory approaches which are at the aggressive end of interpretation of the relevant rules and regulations,” the letter said.
Turner said Barclays’s Protium transaction in 2009, which involved moving the riskiest assets off its balance sheet using a Cayman Islands-based fund run by former executives, was a “convoluted attempt to portray a favorable accounting result.”
The bank also gave a “confusing and potentially misleading impression” that it had a core Tier 1 capital ratio of more than 10 percent under stress tests conducted by the European Banking Authority last year, Turner said. The lender actually held a 9.8 percent ratio, he said.
“This is a very important letter and one that we took very seriously,” Agius said. “I have not had another letter as serious as this.”
Barclays avoided the fates of Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc (LLOY), Northern Rock Plc and Bradford & Bingley Plc, which were either bailed out by the U.K. government or nationalized in the financial crisis of 2008. At the time, there was concern Barclays was “next in line,” Bank of England Deputy Governor Paul Tucker told the committee on July 9.
“Barclays on a Basel III basis looks relatively weakly capitalized versus the other banks, although like the others it’s making progress,” said Greenwood, the Shore Capital analyst. “The incentive to overstate capital is to avoid a forced recapitalization.”
Barclays raised 7 billion pounds of capital from investors including Abu Dhabi and Qatar sovereign wealth funds in November 2008, helping the bank avoid a government bailout. The bank also sold Barclays Global Investors to BlackRock Inc. (BLK:US) for $15.2 billion in 2009.
Regulators weren’t consistent in how they presented their views on Barclays’s senior management, Agius said yesterday. “We went from Wednesday night, when Diamond had the support of the regulators, to Monday night, when he did not have the support of the regulators,” he said.
Barclays was the first to cooperate “in a meaningful way” in the Libor probe, the U.S. Justice Department said last month. The bank’s cooperation was “extraordinary” and exceeded competitors’ levels of assistance, it said. The bank “took comfort” from the FSA not finding Diamond culpable for attempting to manipulate Libor, Agius said.
The list of Barclays’s clashes with the U.K. government and regulators is growing. The bank, along with Lloyds, RBS and HSBC Holdings Plc (HSBA), last month agreed to compensate small businesses for improperly sold interest-rate derivatives. That comes on top of fines for attempted Libor manipulation, mis-sold loan insurance and bad investment advice. The company was also required to shut down tax-avoidance loopholes deemed “highly abusive” by the U.K. Treasury.
“All this makes it less likely Diamond’s successor is an insider,” Simon Willis, an analyst at Daniel Stewart Securities Plc in London, said in an interview “It’s a reasonable conclusion that the next CEO is going to be someone who plays it straight.”
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