Banking on substance seems a little ironic..

Well this is terribly worrying. Yesterday, Barclays bank – one of the biggest banks in the world – was fined a record £290 million for attempting to manipulate the world’s benchmark borrowing rate – the Libor – the London Interbank Offered Rate. This is a huge blow to the bank’s reputation and credibility, that’s raised questions over the future of chief executive Bob Diamond. Up to 40 other global banks face being named and shamed as part of the investigation.

Let’s chat about some numbers before we proceed: The London Interbank interest rate underpins some $450 trillion worth of loans and financial contracts worldwide.

Say that again: $450 trillion.

There are a lot of zero’s on the end of that number.

All right, let’s carry on.

Investigators from the FSA and the US Commodity Futures and Trading Commission said they had found evidence that “Barclays had tried to manipulate Libor for several years in the run up to the financial crisis and in its aftermath.”

Barclays chief executive Bob Diamond, and three of the bank’s senior managers, including finance director Chris Lucas, said they would not take bonuses this year as a result of the regulator’s findings.

Good one, guys. Very honourable of you.

One would think they’d immediately tender their resignations as a result, like one shareholder told the Telegraph:

Taking off a couple of million from Bob’s bonus isn’t enough. People should be considering resignations. This has happened under the board’s nose. Where is the accountability?

Senior British politicians joined in on the public attack, saying the manipulation of such an important borrowing measure was “inexcusable”, as you’d imagine.

To put it simply, Libor underlies everything from derivatives trades, to US consumer credit card rates, to loans as far afield as those financing Turkish phone networks. Even here at home, Absa, majority owned by Barclays, may have been affected.

You may have picked up that Absa stunned the market on Tuesday with a predicted profit decrease, citing an increase in mortgage-related bad debts, “sending its shares tumbling and raising fears a sector-wide recovery was losing steam.”

As of this morning, Absa shares have been taking a hammering, down around three per cent already. Thomson Reuters data suggest that as a result of Tuesday’s announcement, and last night’s Barclays fine, R13,4 billion of Absa’s market value has been wiped out.

Barclays also tried to manipulate Euribor, a separately managed series of euro-denominated rates.

The investigation has been going on for at least three years, and authorities said the manipulation took place from 2005 through 2009, meaning that millions of borrowers paid too little, or too much interest on their debt.

The Telegraph has compiled a comprehensive list of emails uncovered as part of the investigation into the claims.

Here is some spice from some of those emails:

In one message sent to a Barclays employee involved in the bank’s Libor submission, a trader asked for the rate to be set “as high as possible today”, to which the unnamed staff member replied “sure”.

In another, a trader from an unnamed rival bank thanks a Barclays trader for successfully getting the lender’s Libor rate lowered, saying: “Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger.”

About a dozen banks are being investigated as part of the Libor probe, including state-backed lenders Lloyds Banking Group and Royal Bank of Scotland, as well as many of the largest US and European investment banks.

Read more of the emails HERE.

The integrity of the benchmark interest rate is obviously now heavily undermined as a result.

Marcus Agius, chairman of Barclays, offered the following:

The board takes the issues underlying today’s announcement extremely seriously and views them with the utmost regret. Since these issues were identified, the authorities acknowledge that Barclays management has co-operated fully with their investigations and taken, and continues to take, prompt and decisive action to correct them.

Mr Diamond pocketed more than £17 million last year, and apologised that some people had “acted in a manner not consistent with our culture and values.”

Somehow, that just doesn’t seem good enough.

[Source: Telegraph]