Barclays sailed close to the wind, Bank governor says

Barclays bank had sailed "close to the wind" too often, the governor of the Bank of England has said.

In evidence to the Treasury Select Committee, Sir Mervyn King said the UK authorities were worried about senior management at Barclays, even before the recent Libor scandal broke.

The governor and the chairman of the Financial Services Authority (FSA) were explaining why they wanted Barclays' chief executive Bob Diamond to resign.

Mr Diamond stepped down last month.

Sir Mervyn told the MPs that the board of Barclays had appeared to be in a "state of denial" about the concerns that the Bank and the financial regulator, the FSA, had had about the way the bank operated.

These had been conveyed in writing to the bank's board of directors in April in a formal letter from Lord Turner of the FSA.

Explaining why the Libor scandal had not been the straw that broke the camel's back but a "bale", Sir Mervyn told the MPs: "They [the bank] have been sailing too close to the wind across a wide number of areas."

He explained that this had made regulating Barclays very difficult, and this in turn had led them to lose confidence in the senior executive management at Barclays, such as Mr Diamond.

Wrong resignation

The Treasury Committee, in a series of hearings, has been probing the events leading up to last month's £290m punishment of Barclays by the FSA and US authorities for attempting to manipulate Libor between 2005 and 2009.

Within days of the publication of the FSA report, the Barclays chairman Marcus Agius resigned, followed by the chief executive Bob Diamond and then Jerry del Missier, the banks' chief operating officer.

Sir Mervyn told the MPs that between the publication of the report and the eventual resignations he had intervened, along with FSA chairman Lord Turner, to put pressure on the Barclays board to take decisive action in the light of the emerging Libor scandal.

Both Lord Turner and Sir Mervyn said they had, however, been surprised when, two weekends' ago, Marcus Agius decided to resign rather than Bob Diamond.

They thought that this had been the wrong decision, and without giving Mr Agius a clear instruction to sack Mr Diamond, had made it clear that the chief executive's resignation or removal from office was their desired outcome.

Lord Turner and Sir Mervyn King said they had regarded Mr Diamond as the individual most responsible for an unacceptable culture at the top of Barclays, which had come to a head with revelations of attempts to fix the crucial Libor interest rate.

"The Barclays board... was deeply reluctant to face up to the concerns," Sir Mervyn said.

"It became clear to me that they hadn't really taken on board the loss of confidence."

Dysfunctional

Sir Mervyn has denied that the Bank of England ignored apparent warnings in 2008 from the Federal Reserve Bank of New York, that the Libor rate-setting mechanism might have been the subject of attempted manipulation.

 

The governor said that there had been no clear evidence of any wrong-doing, just suspicion.

He denied an allegation that he was in denial over public suggestions of Libor rigging, made as far back as 2008 in the Wall Street Journal. Sir Mervyn said no evidence of wrong-doing had been supplied at the time.

"If you go back to the inquiries which regulators made, it took them three years to work out and find the evidence of wrongdoings," he said.

"If it was so obvious and it was all in the newspapers and everyone was talking about it, one might ask the question why everyone didn't say this is wrong.

"The reason was because it wasn't wrongdoing, it was in a market that was dysfunctional and not operating in any effective way," he added.

He revealed that he had only learned of the decision of Marcus Agius to resign when he read it on the BBC news website.