Bloomberg News

Diamond Accused of Lying After FSA Releases Letter

July 10, 2012

Diamond Accused of Misleading Lawmakers After FSA’s Letter

Robert "Bob" Diamond, former chief executive officer of Barclays Plc, center, in London. Photographer: Paul Thomas/Bloomberg

Robert Diamond, who quit as head of Barclays Plc (BARC) last week after allegations that interest rates had been rigged, denied he misled Parliament on relations with regulators and said he’d be willing to discuss the matter again.

Diamond, the former chief executive officer of Barclays, was accused today during a hearing of Parliament’s Treasury Committee of misleading U.K. lawmakers after a letter from the Financial Services Authority emerged. The letter contradicted his July 4 testimony that regulators were “happy” with the bank, and Chairman Marcus Agius told the panel today the bank’s interactions with the FSA were “strained.”

Any suggestion that Diamond was less than candid “would be totally unfair and unfounded,” the ex-CEO said in a letter to Treasury Committee Chairman Andrew Tyrie. “The comments made at today’s hearing have had a terribly unfair impact upon my reputation.” Diamond wasn’t present during the session.

Diamond resigned July 3 after the London-based lender was fined a record 290 million pounds ($450 million) for attempting to rig interest rates used as a benchmark for global lending. A day later, Diamond told Tyrie’s committee that the FSA had been “specifically pleased” with the “tone at the top,” and he didn’t disclose the FSA’s criticisms of transactions that aimed to show the bank’s accounts in a more positive light.

Agius released an April 10 letter from FSA Chairman Adair Turner in which the regulator cited “a pattern of behavior” that cast doubt on whether Barclays could be trusted.

Trust Issues

“Barclays has a tendency continually to seek advantage from complex structures or favorable regulatory interpretations,” Turner said in the letter, which Agius said he had showed to Diamond. “The net impact has clearly been unfavorable to the degree of external trust in Barclays’s approach to issues such as tax, regulation and accounting.”

Diamond, 60, said the FSA felt there were some “cultural issues” that needed to be resolved at Barclays, and didn’t mention the letter even when prompted by Tyrie.

“Diamond lied to the committee,” David Ruffley, a committee member from the U.K.’s ruling Conservative Party, said at today’s hearing. John Mann, a fellow committee member and lawmaker from the opposition Labour Party, said Diamond should be recalled to give more evidence.

“The information provided by Marcus Agius exposes the inconsistencies of Bob Diamond’s responses,” Mann said. “Our only option is to recall Diamond to get the full truth.”

Libor Probe

Barclays, along with some of the world’s biggest financial institutions, faces an international investigation into an attempt by lenders in the U.K. and U.S. to rig the London interbank offered rate. Known as Libor, it’s determined by 18 banks’ daily estimates of how much it would cost to borrow from one another for different spans and currencies, and it’s used to help set rates on more than $360 trillion of securities, including mortgages, student loans and swaps.

British lawmakers’ power to punish people they conclude have misled them 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 had misled it over phone-hacking. Historical powers to jail people guilty of contempt of Parliament haven’t been used in more than a century.

No Bonus

Diamond will forgo 20 million pounds of deferred bonuses, and receive 2 million pounds in base pay and pensions, Agius said today. Barclays had been under pressure to limit Diamond’s severance after the record fine. Diamond, Britain’s best-paid bank CEO, has earned about 120 million pounds in pay and bonuses since 2005, according to Manifest Information Services Ltd.

Diamond said he was “dismayed” the committee suggested he wasn’t honest with lawmakers in the letter. He said he wasn’t asked about the April letter under questioning, and it referred to a meeting he didn’t attend.

Barclays rose 2.2 percent to 167 pence in London trading for a market value of about 20.4 billion pounds. The stock has dropped 5.1 percent this year, making it the worst performer in the six-member FTSE 350 Banks Index. (F3BANKS)

Turner’s letter criticized the bank for a series of “complex structures” aimed at showing the firm’s capital position in a positive light. The Protium transaction in 2009, which involved moving the riskiest assets off its balance using a Cayman Islands-based fund run by former executives, was a “convoluted attempt to portray a favorable accounting result,” Turner said.

‘Potentially Misleading’

Barclays 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.

Agius said Bank of England Governor Mervyn King told him that Diamond had lost the support of regulators, prompting his departure. Barclays was the first of at least 12 banks to settle with the U.K.’s FSA, the U.S.’s Commodity Futures Trading Commission and the Department of Justice.

Diamond’s resignation was announced on July 3, the morning after a 6 p.m. meeting with King, Agius and Michael Rake, the then-head of the company’s audit committee, Agius said.

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,” Agius said. “It was made very clear that Bob Diamond no longer enjoyed the support of his regulators.”

‘The Governor’

Following the conversation, Agius held a board meeting with the non-executive directors and then spoke with Diamond.

“The Governor made it perfectly clear that any decision that would be taken would be taken by the board or Bob Diamond individually,” Agius said.

Agius, who became chairman in 2007, relayed the King conversation to Diamond, who “was not in a good place,” he said. Diamond asked for some time to speak to his family before making a decision, Agius said.

“You were handing him a loaded revolver weren’t you?” Tyrie asked.

“We left confident that if he hadn’t already made the decision, he would make the right decision,” Agius said.

To contact the reporters on this story: Howard Mustoe in London at hmustoe@bloomberg.net; Kevin Crowley in London at kcrowley1@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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