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Libor scandal: former Barclays executive and FSA chairman face MPs

Category : Business

Del Missier says acted on Bank of England instruction to cut Libor rates
He reveals Barclays’ compliance division was told
FSA’s Bailey says there was a “culture of gaming” at Barclays
FSA’s Turner says he would be ‘amazed’ if there weren’t other market abuses
FSA investigating 7 banks, not all British
Turner says “at one” with Mervyn King that Diamond had to go

7.35pm: The hearing has ended. Tomorrow we’ll get Mervyn King and his deputy Paul Tucker at 10am.

7.30pm: Turning to Diamond’s resignation now, Turner recounts that he told Marcus Agius, the Barclays chairman on 6 July: “We’re not saying we found Diamond not to be fit and proper” to run Barclays but added that the board had to think “very seriously about the scale of the change which Barclays had to make both in a substantive sense but also in the need for them to have a leadership that could convince the external world that they had changed culturally and had addressed these issues”. He told Agius: “You have got to think about whether this is possible with Bob Diamond or simply impossible.”

Turner says while he regarded it as an “honourable decision,” he was surprised that Agius decided to step down two days later – he had expected Diamond to resign instead. Turner then had a meeting with Mervyn King, the governor of the Bank of England, and both agreed on the “correct message”. King relayed that message to Barclays. “We were at one in the message we had to give to Barclays” that Diamond had to go, Turner stresses.

7.20pm: “We have been pushing this as fast as we can,” says Turner. “I think this is a huge problem.” He denies shrugging his shoulder dismissively during the testimony. “We should have spotted this earlier. There was a failure in general to see this whole financial crisis coming.”

7.14pm: George Mudie asks why did the FSA not act sooner on the warnings it had received, given that $4-5 trillion worth of business was affected and the reputation of the City of London was at stake.

7.07pm: Asked about governance at Barclays, Turner says: “The form may look as it is recommended by the book, but whatever the form was, the substance wasn’t working.”

McDermott says the FSA is investigating seven financial institutions over Libor, not all British banks.

7.00pm: Faisal Islam, economics editor Channel 4 News, tweets:

So i think if Diamond had not settled the Libor case: he would still be chief exec. As FSA wouldve done nothing re its litany of complaints

— Faisal Islam (@faisalislam) July 16, 2012

6.52pm: McDermott says the FSA has used its criminal prosecution powers in insider dealing cases, but doesn’t have such powers in the Libor rigging case. The City watchdog has been sharing evidence with the SFO throughout, she adds.

Here we didn’t believe we had the powers.

6.49pm: David Ruffley is pressing on why the FSA has not undertaken any criminal investigations. “We do not take the lead in prosecuting general fraud events,” reiterates McDermott. Turner said earlier that the FSA has been in contact with the Serious Fraud Office throughout the Libor investigation.

6.14pm: Turner describes Libor to the “frog in the boiling water story”.

“We did have, we never used the word, a somewhat light touch to regulation, in particular in those areas of wholesale conduct,” he admits. The FSA only had five people on Barclays and five on RBS, and at one stage only had one person shared between Barclays and RBS. The focus was only to a “small extent” on investment banks.

6.09pm: Turner is asked: “Is this the tip of the iceberg?” [in relation to market abuse]

“We don’t know… but I would be amazed if this was everything,” he replies.

6.05pm: Tracey McDermott, the FSA’s acting head of enforcement, says it was widely known in 2007 and 2008 that the libor market was not operating in the way it had previously done.

6.02pm: Steve Hawkes, business editor of the Sun, has just tweeted this:

TSC have called Andrew Bailey Anrew on his name plate … that can’t be blamed on Barclays

— steve hawkes (@steve_hawkes) July 16, 2012

5.53pm: Bailey says he never had a conversation with a bank like the one he had with Barclays. “Barclays was an outlier.”

You couldn’t escape the fact that the culture of this institution was coming from the top.

5.46pm: The minutes from the Barclays board meeting on 9 February say resolving the perception of an aggressive culture is “critical to the future of the group”.

5.45pm: Bailey says Diamond “did not capture the severity of the issue” in his answers to MPs at at an earlier committee hearing.

5.43pm: You can read the letters between Barclays chairman Marcus Agius and the Financial Services Authority here.

5.41pm: “There was a culture of gaming, and gaming us,” says Bailey. “It had to change.”

Asked whether “the regulator had had enough?” Bailey replies: “Yes.”

5.40pm: Bailey says at the time of the February board meeting there were a whole series of issues with Barclays, but there was no impression that Bob Diamond was personally involved.

5.38pm: Lord Turner, chairman of the Financial Services Authority, Andrew Bailey, the FSA’s top banking regulator and Tracey McDermott, the acting head of enforcement (and responsible for the Barclays fine) are now being grilled by MPs.

5.26pm: Right, del Missier is allowed to go. The FSA guys are next. During the break, here’s a quick missive from Jill Treanor, our banking correspondent:

So Del Missier is now naming names and providing new information about the Libor scandal. Mark Dearlove, head of the money markets desk, is the person he told to cut Libor rates. Dearlove, or someone on the money market desk, told the compliance department, then headed by Stephen Morse, that they were being asked to cut Libor submissions.
According to del Missier there was no response from compliance. According to the FSA register Morse is currently “inactive”

5.23pm: Del Missier says the money market desk informed the bank’s compliance unit of the request to reduce Libor rates, but compliance didn’t follow up with him or anyone in senior management.

5.22pm: The first bonus-related question, from Tory MP Andrea Leadsom. But she doesn’t get much of an answer and doesn’t follow up. Del Missier is asked how much his bonus depends on good controls. He is asked for a percentage, but says he was never told.

5.13pm: “I can understand… that there is resentment towards Barclays and the banks,” he says.

5.12pm: He is not aware he is under investigation by any regulatory authority in the UK or US. He says the FSA cleared him of any wrongdoing related to the Libor investigation.

5.09pm: Del Missier denies he is “acting as a fall guy” for Bob Diamond. “I’m not the fall guy for anything. This happened to the bank, and I resigned as a result of it.”

5.05pm: Del Missier admits the rigging was “regrettable”. He regrets the “control breakdowns”.

4.55pm: He says his instruction to the money desk at Barclays to submit lower Libor rates only lasted for days – it wasn’t open-ended. He wasn’t aware of other market manipulation at the bank.

4.48pm: Del Missier claims between 2005 and the autumn of 2008, he had no knowledge of rigging of rates. “I was not aware there was any sort of pressure applied to any of the Libor submitters in 2007. I first found out about that in late 2009, early 2010 as the investigation went on I became aware of the scale.”

4.41pm: “Were you aware that they were doing it from 2007 onwards?” del Missier is asked by MP George Mudie. “The traders were doing it to improve profits at Barclays,” says Mudie.

4.39pm: Del Missier says he had “regular communication” with Bob Diamond.

4.29pm: “I regret the fact that Barclays’ reputation has been sullied” by the Libor scandal, says del Missier. He agrees in retrospect that “lowballing” of Libor rates was improper, although he didn’t think so at the time. He believed he was acting on an instruction from the Bank of England to lower Libor.

4.27pm: Our banking correspondent Jill Treanor sums up the action so far:

Del Missier has kicked off by talking about a conversation he had with Diamond the day before that controversial memo which cost him his job. Diamond made no mention of having spoken to del Missier about this when he appeared before the committee when all would say was that he could not put himself in del Missier’s shoes.

4.24pm: Del Missier instructed Barclays’ submitters to cut the interest rate. He says he gave the instruction to the head of the money market desk, and admits he didn’t follow up on the instruction to see whether it was being followed. He says it was an instruction from Bob Diamond to lowball the libor rates, following his conversation with Paul Tucker at the Bank of England.

4.22pm: “The manipulation of Libor is illegal,” according to guidelines by the US Department of Justice read out by Ruffley, del Missier admits finally. But he adds he didn’t believe it was an inappropriate act at the time. “At the time it seemed appropriate given everything that was going on.”

4.21pm: Del Missier is being asked, repeatedly (in Jeremy Paxman style), by Tory MP David Ruffley whether lowballing of Libor is an illegal activity. “It’s not a yes or no answer,” says del Missier.

4.18pm: “This was not the first time Libor had come up as an issue,” says del Missier. He has also talked about the phone call he received from his boss Bob Diamond in October 2008, who told him that the Bank of England was putting pressure on the bank to get Libor rates down. The Bank in turn was coming under pressure from Whitehall.

4.12pm: Del Missier says the Libor rate at the time was “hugely, hugely subjective”. He talks about the context, describing it as a “period of severe escalation” post the Lehman Brothers collapse, with an “unprecedented degree of government intervention in the financial system”.

4.11pm: Here we go, Jerry del Missier is first up in front of the committee.

4.07pm: We’re still waiting for the testimony to start….

3.49pm: Good afternoon and welcome to our live blog. Jerry del Missier, a Canadian, is the latest to be hauled before the Treasury select committee to talk about the Libor rigging scandal. He quit just hours after Bob Diamond, the Barclays chief executive, resigned after the £290m fine hammered the bank’s share price and its reputation. The two men were close at Barclays Capital, the investment banking arm, and del Missier had been promoted only three weeks ago to chief operating officer for the entire bank.

Del Missier is also caught up in the controversial memo written by Diamond on October 29 2008 after a conversation with Bank of England governor Paul Tucker. Here is the memo.

In the memo Diamond, who then ran BarCap, tells del Missier and the then-chief executive John Varley that Tucker was concerned about the bank’s Libor levels during the crisis and Del Missier interprets the memo as a tacit signal to cut the submission to the Libor panel. Del Missier, who was investigated by the Financial Services Authority but no charges were brought, instructed the bank’s submitters to cut the interest rate. He is likely to be asked why he interpreted Diamond’s memo the way he did and whether or not he had asked Diamond for guidance. [When Diamond was asked at his appearance before MPs he said he could not put himself in Del Missier's shoes.]

The session is scheduled to run from 1600 to 1645 when Lord Turner, chairman of the Financial Services Authority, will appear alongside Andrew Bailey, the FSA’s top banking regulator and Tracey McDermott, the acting head of enforcement (and responsible for the fine).

Turner is likely to face a grilling about when he found out about Libor and crucially why it was Sir Mervyn King, Bank of England governor, who told Barclays that Diamond had to leave and not Turner, whose FSA actually regulates the banks.

MPs to question Bank of England deputy over Barclays

Category : Business

Paul Tucker will give evidence to select committee about Libor scandal after Bob Diamond revealed a conversation with him

Paul Tucker, the deputy governor of the Bank of England, will get his opportunity to explain the controversial conversation he had with the former Barclays boss Bob Diamond about the key Libor rate when he appears before the Treasury select committee on Monday.

Tucker requested to appear before MPs, who more usually summon witnesses than receive requests to appear, in the hours before Diamond was questioned on Wednesday. There were expectations that the former Barclays chief executive would put him at the centre of the bank’s attempts to manipulate the London interbank offered rate which led to its £290m fine last week.

A memo written by Diamond to record a conversation he had with Tucker during the 2008 banking crisis led to a senior Barclays banker, Jerry del Missier, telling subordinates to reduce their Libor submissions. Del Missier quit this week.

The memo also said Tucker had told Diamond that “senior Whitehall figures” were concerned about the rates at which the bank said it was borrowing during the crisis. Tucker will be under pressure to identify these Whitehall figures as Diamond insisted he did not know who they were.