Barclays Libor affair: a reminder of what they said

Mark Baker
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The BBC is broadcasting on Monday an episode of Panorama that will present new material relating to the Barclays Libor affair: here is a guide to some of the related evidence from the UK Treasury Select Committee inquiry in 2012.

The BBC has trailed heavily its episode of Panorama at 20:30 UK time on Monday that will explore new material relating to the Barclays Libor affair of 2012. In particular, it has released a clip of a phone conversation in which one employee issues an instruction to another employee to lower the bank’s Libor submissions in response to “serious pressure from the UK government and the Bank of England”.

The news has been widely greeted as contradicting some of the evidence presented to the UK Treasury Select Committee inquiry in 2012. But in fact it appears to confirm important parts of it. Former COO Jerry del Missier was quite clear at the time that he interpreted comments to him by former CEO Bob Diamond as passing on an instruction from the Bank of England that Barclays should lower its Libor submissions. 

Del Missier said he duly passed this instruction on to Mark Dearlove, head of the money market desk, who the BBC says is the person passing on the instruction in the phone recording it has obtained.

Here's a reminder of what we were told in 2012:

• Barclays former CEO Bob Diamond said he had a conversation with Bank of England deputy governor Paul Tucker in which Tucker raised concerns about how high Barclays’ Libor submissions were
• Diamond said that the reality was that other banks’ submissions were too low
• Diamond said that he did not interpret Tucker’s comments as an instruction to lower Barclays’ Libor submissions
• Tucker said that his comments to Diamond were mainly related to the broad activity of its money market desk, not its Libor submissions
• Tucker said he had not intended to give any instruction to Diamond to lower Barclays’ Libor submissions, and that to his knowledge Diamond had not interpreted his comments as any kind of instruction
• Former Barclays COO Jerry del Missier said that he did interpret a conversation with Diamond as passing on an instruction from the Bank of England that Barclays should lower its Libor submissions, and subsequently passed that on to Mark Dearlove, the head of the money market desk 

So, taking the evidence at face value, what we had was a series of apparent misinterpretations: first, that Diamond thought that Tucker was referring to the bank's Libor submissions, and second, that del Missier thought Diamond was telling him that Tucker wanted the bank to lower its submissions. 

Three issues

You may recall that when this all blew up in 2012 – prompting the resignations of Diamond and del Missier – there were three separate, but related, issues at stake. It’s worth bearing this in mind, as the three were often confused and conflated.

First, there was the issue of the misbehaviour of individual traders seeking to influence Libor submissions to the British Banking Association for the purposes of enhancing the bank’s Libor-related positions. This is not what we are concerned with here.

Second, there was the issue of individual banks seeking to present a better picture of their financial health during the crisis by using Libor submissions that might not reflect the reality of where they would have to fund if they were actually to try to do so. Again, that’s not precisely the issue here, but is more closely related.

Third, there was the suggestion that at the worst times of the crisis UK politicians and/or officials from the Bank of England might have either explicitly or implicitly encouraged banks to lower their Libor submissions. This is precisely what is being talked about today and was the subject of the phone call that the BBC is trailing.

EXHIBIT ONE: Bob Diamond note re Paul Tucker

According to evidence given to the parliamentary inquiry in 2012, on October 29 2008 Bob Diamond wrote an email to John Varley, who was at the time chairman of Barclays, alerting him to a conversation he had had with Paul Tucker, at the time deputy governor of the Bank of England. Jerry del Missier was copied into the email.

Here it is:

Barclays libor email

EXHIBIT TWO: Barclays’ explanation

When submitting the email as part of its supplementary evidence to the Treasury Select Committee investigation, Barclays offered the following explanation for it:

During October 2008, in the wake of the collapse of Lehman Brothers, when liquidity conditions had tightened acutely, Barclays raised its US Dollar LIBOR submissions more significantly than other panel members. In the month of October 2008, in particular, Barclays US Dollar LIBOR submissions for the 3 month maturity were the highest or next highest of the panel on every single day of the month and therefore excluded from the calculation of LIBOR. Barclays did not understand why other banks were consistently posting lower submissions; Barclays firmly believed that the other panel members were not, in fact, funding at a lower cost than Barclays, and we were disappointed that no effective action was taken, notwithstanding our having raised these issues with various Authorities during the whole financial crisis period as outlined in the attached timeline.

As one would expect, Barclays (including Bob Diamond and Jerry del Missier) was in close contact with the Bank of England and other Authorities about the liquidity crisis generally. On 29 October 2008, Bob Diamond received a call from Paul Tucker, the Deputy Governor of the Bank of England. The substance of that call was captured by Bob Diamond via a note prepared at the time. A copy of that note is appended to this document; it was circulated to John Varley, then Barclays Chief Executive, and Jerry del Missier, then President of Barclays Capital.

Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier. Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high and he therefore passed down a direction to that effect to the submitters.

There was no allegation by the Authorities that this instruction was intended to manipulate the ultimate rate. The bank’s submissions had consistently been excluded from the LIBOR calculation. Moreover the instruction became redundant in a matter of days as market conditions improved. 

EXHIBIT THREE: Bob Diamond oral evidence to Treasury Select Committee, July 4 2012

Diamond was called in to speak to the Committee in what was a memorably hostile encounter, with the former Barclays CEO widely considered at the time to have misread the tone, even riling his questioners with his insistence on using their first names. He frustrated many of them with what he said too, and the hearing frequently took on the appearance of a public flogging rather than an attempt at serious investigation.

But there were some instructive exchanges. The key thing is that Diamond was adamant he had not interpreted his conversation with Tucker to have been an instruction for the bank to lower its Libor submissions. And he did not know why Del Missier had misinterpreted a subsequent conversation with Diamond as passing on an instruction to do precisely that.

The following extracts come from the UK Parliament’s transcript of the oral evidence to the Committee, which can be found here:

Q38 Chair: […] The note from Mr Tucker says that he felt your LIBOR returns could be lower, doesn’t it?
Bob Diamond: He felt that our LIBOR rates relative to the other 15 posters—
Q39 Chair: Could be relative lower. Yes?
Bob Diamond: Yes.
Q40 Chair: Why then, on page 2 of the note to this Committee yesterday, did you say that you don’t believe you received an instruction?
Bob Diamond:I did not believe it was an instruction.
Q41 Chair: So what was it? A nod and a wink?
Bob Diamond: The most important thing of that note to me, Chairman, was the comment that there was a perception in Whitehall that our rates were high […] 

Diamond said he stressed to Tucker that he considered other banks’ submissions to be not reflective of where those banks would be able to fund if they had to. And he was worried that government officials might get the wrong impression about Barclays if that context was not explained to them.

Bob Diamond: If Whitehall was told, “Barclays is at the highest of LIBOR”, without knowing all that I just went through, they might say to themselves, “My goodness, they can’t fund. We need to nationalise them,” as they had nationalised other British banks. This was a very important period.

Given that, the Committee wanted to know how Jerry del Missier was able to misinterpret a conversation on this subject with Diamond, which led del Missier to issue an instruction to lower the bank’s Libor submissions.

Q86 Michael Fallon: […] You say in your supplementary submission here on page 2 that Jerry del Missier concluded that an instruction had been passed from the Bank not to keep the Libors so high, and therefore passed down the direction to that effect to the submitters. Given that you see del Missier, presumably every day, how did he misconstrue the purpose of this phone call? How did that happen?
Bob Diamond: You read the note, and I think the Chairman said he misconstrued it. I think Jerry has been very honest that there was a misunderstanding, or a miscommunication, between the communication of the Bank of England down, and that he was the person that instructed.
Q307 Michael Fallon: You have explained how you alerted John Varley that there might be some misunderstanding in Whitehall of your funding ability. I understand that from the note. What I am not clear about is what is your understanding of what Mr Tucker wanted you to do.
Bob Diamond: He was pointing out the problem and I was pointing out that the problem was not with Barclays; the problem was with other submissions. Sorry, it is too short-hand to say it.
Q309 Michael Fallon: What did he want you to do about it?
Bob Diamond: As I said, I did not take it as a directive; I took it as either a heads-up that you are high or an annoyance that you are high. 

EXHIBIT FOUR: Paul Tucker oral evidence to Treasury Select Committee, July 9 2012

The Bank of England’s Paul Tucker gave evidence a few days later. He agreed with Diamond that his conversation had not been intended to be an instruction to lower the bank’s Libor submissions.

But Tucker went further, arguing that he had in fact been referring to the general behaviour of the bank’s money market desk, not to its Libor submissions. His view was that a desk offering to trade at high levels was creating a perception of distress. He said that in this respect, Diamond’s note to Varley gave the wrong impression:

Paul Tucker: It should have said something along the lines of, “Are you ensuring that you, the senior management of Barclays, are following the day-to-day operations of your money market desk, your treasury? Are you ensuring that they don’t march you over the cliff inadvertently by giving signals that you need to pay up for funds?”
Q336 Chair: […] Would you categorically refute the suggestion that this conversation might reasonably have led someone to suppose you were inviting Barclays to join the pack and under-report Libor?
Paul Tucker: Absolutely 

Tucker said explicitly that no government official had encouraged him to “lean on” Barclays or any other bank to lower their Libor submissions, and reiterated that some of his comments had not related to Libor submissions. And he argued that to his knowledge, Diamond did not interpret his comments as any kind of instruction to lower the bank’s submissions.

Q345 Mr McFadden: […] If no one leaned on you why does the Bob Diamond note of the phone call say that you said, “It didn’t always need to be the case that we”—that is “we”, Barclays—“appeared as high as we had recently”? What did you mean by that?
Paul Tucker: This is not about LIBOR submissions. This is about the conduct of their treasury desk or money-market desk
Q357 Michael Fallon: […]We have Mr Diamond misinterpreting your phone call, which you made to him, and then we have Mr del Missier immediately misinterpreting Mr Diamond. You do see there is a mystery here as to how there should be these two misunderstandings between three very intelligent people right at the edge of these markets.
Paul Tucker: I don’t think that Bob Diamond did misinterpret. I understand his evidence is that he did not understand the instruction to be given. I was plainly talking about their money market activity, and the reason for mentioning Whitehall was that everybody is now talking about this; the market must be talking to Whitehall about it. 

EXHIBIT FIVE:Jerry del Missier oral evidence to Treasury Select Committee, July 16 2012

Jerry del Missier’s evidence was in many ways the most straightforward when it came to this particular issue. He said that Diamond, after his conversation with Tucker, had told del Missier that the Bank of England was under pressure from “Whitehall” about how high Barclays’ Libor submissions were and that “we should get our Libor rates down and that we should not be outliers”.

Jerry del Missier: I passed the instruction, as I had received it, on to the head of the money markets desk.
Q832 Chair: And what did you say to him when you passed that instruction?
Jerry del Missier: I relayed the contents of the conversation that I had with Mr Diamond, and fully expected that the Bank of England’s views would be incorporated in the LIBOR submissions. 

Del Missier stated that had he considered this to be a purely internal instruction — i.e. originating from within Barclays only — then he would not have followed it. He only did so because he believed it had come from the tripartite authorities and that “Mr Diamond told me that Mr Tucker had given it”.

Del Missier then relayed it to the head of the money market desk, Mark Dearlove, telling him that it was an instruction from the Bank of England.

Q1000 Andrea Leadsom: […] What exactly did you say to him?
Jerry del Missier: I said, “I’ve spoken to Mr Diamond. He’s had a call from Mr Tucker.” I alluded to the pressure—the political pressure—around Barclays’ health, as demonstrated by our LIBOR rates, and that we should get our rates down and not be an outlier.
Q1001 Andrea Leadsom: So you explicitly instructed him to bring the LIBOR rate submissions down?
Jerry del Missier: I passed the instruction along, yes