Barclays ‘cashed in on Tucker’s Libor hint’


Bank of England faces embarrassing new claims

The Bank of England and Paul Tucker have been drawn back into the Libor scandal amid claims that Barclays used what it believed was a confidential instruction from a former deputy governor to lower rates to buy billions of pounds of debt in rival British lenders at the height of the financial crisis, reports The Times.

In a series of allegations contained in a legal case brought by a caravan company against Barclays over the bank’s representations to and management of the company, including claims that it mis-sold the business an interest rate swap, claims have emerged of how the bank allegedly began building a large sterling position in the debt of other financial companies hours after Mr Tucker spoke to Bob Diamond, then head of Barclays’ investment banking division.

According to the lawsuit, Barclays bought hundreds of millions of pounds of certificates of deposit, a form of bank debt that would rise in value from a fall in sterling rates, after being told the lender had been instructed by Mr Tucker to lower its Libor submission.

In a claim filed with the High Court, the liquidator of Arthur Holgate & Sons, a Cumbria-based caravan park operator, alleged that legal disclosures provided to it show bank staff bought large amounts of debt issued by other lenders in the days after the call ahead of the bank lowering its Libor submission.

It is alleged that Barclays began buying bank debt, said to have totalled £5 billion, hours after Mr Tucker and Mr Diamond had spoken. Separately, a Singapore-based in-house investment fund bought £500 million of sterling bank debt after it allegedly was told about the Bank of England call. Mr Tucker and Mr Diamond have already faced questions over the details of an October 29, 2008, call that resulted in the bank lowering its Libor submission. There is no suggestion of wrongdoing by either man.

The Ricardo Master Fund, a Cayman-registered internal fund, is alleged to have made a profit of $17 million in one day after sterling Libor rates fell, with total profits from its sterling Libor trades estimated to have exceeded $100 million. The profits from the bank’s debt position are not stated.

In a monthly report published on November 10, 2008, the Ricardo Fund is said to have highlighted its profits from the fall in Libor, as well as the November 6 rate cut. “In the last three weeks, GBP Libor fell dramatically. The 150 bp [1.5 percentage point] surprise rate cut by the BoE helped a lot. At the very least, Mervyn King [governor of the Bank of England] gave the Fund its best day ever as Libor and CDs [certificate of deposit] rates dropped 100bp,” the fund said.

Barclays has admitted trying to manipulate Libor and has paid hundreds of millions of pounds in fines to regulators in America and Britain.

However, the lawsuit claims that details of the sterling Libor trades were never disclosed to regulators. The lawsuit also alleges that a Singaporean investigation was not told about the true nature of the Ricardo Fund. A £100 million internal investigation by Barclays did not look at the fund.

The lawsuit stated: “In its effort to create a closed circle of admissions by plea-bargaining the regulatory findings, Barclays concealed the existence of RMF [Ricardo Master Fund], its purposes in relation to Libor rates and its profit from the regulatory authorities.”

At the time of its July 2012 settlement with the UK and the US, attention focused on what Mr Tucker said to Mr Diamond in their call. A file note of the conversation written by Mr Diamond reported that: “Mr Tucker stated the level of calls he was receiving from Whitehall were ‘senior’ and that while he was certain we did not need advice, that it did not always need to be the case that we appeared as high [in terms of Libor submissions] as we have recently.”

After a conversation between Mr Diamond and Jerry del Missier, a senior executive in the investment bank, the latter ordered the bank’s Libor submitters to lower the borrowing rates submitted to calculate the daily official rate.

A parliamentary report on the incident concluded that “if Mr Tucker, Mr Diamond and Mr del Missier are to be believed, an extraordinary, but conceivably plausible series of misunderstandings and miscommunications occurred. The evidence that they separately gave describes a combination of circumstances which would excuse all the participants from the charge of deliberate wrongdoing.”

It is alleged in the Holgate lawsuit that Barclays left a week between the perceived instruction and lowering the rates it submitted, giving traders several days to buy sterling assets cheaply.

A spokesman for Barclays said: “We cannot comment on a matter which is currently in litigation, save to confirm we will be vigorously defending it.”