Diamond’s dodgy legacy
FOur years have passed since ‘Master of the universe’ Bob diamond revealed that something rum was going on in the Libor market, which sets interest rates for billions of pounds of assets ranging from household mortgages to big syndicated loans for sovereign nations.
He miraculously found an ‘aide memoire’ from the former Bank of England deputy governor Sir Paul Tucker which appeared to suggest that it would be helpful if soaring Libor rates didn’t get too out of hand because of the danger they posed to financial stability.
In the interim almost every piece on the chessboard has changed. diamond was dismissed unceremoniously from Barclays by his board after then governor of the Bank of England Lord King delivered a dressing down.
Tucker, who had high hopes of succeeding King right up to the point that Mark Carney was unveiled as the new governor, headed off to new pastures in academe.
And the British Bankers Association (BBA), the useless trade body which set and policed Libor, was stripped of its role and the rate is now set by the Inter Continental Exchange (ICE).
no top level banker has paid the price for a dishonest manipulation of free markets but those further down the food chain gradually are being vacuumed up by the justice system.
The latest to be convicted of fraudulently manipulating the key interest rate are three Barclays traders, including the most senior of those involved, Jay Merchant.
If the sentencing of a previous UBS Libor trader Tom Hayes is any guide then the three convicted people can expect some long jailtime ahead. The jury failed to reach a verdict on two other accused traders.
The outcome is an important success for david Green, the director of the Serious Fraud Office, who has relentlessly pursued the Libor fiddlers while fighting off efforts from Home Secretary Theresa May, who wanted to abolish the SFO and merge it into the Serious Organised Crime Agency, or some other part of the justice establishment.
The most difficult to understand aspect of the Libor scandal is that everyone from the deputy governor of the Bank of England downwards seems to have known that it was an imperfect market, run by a bunch of incompetents that was only too easy to manipulate.
Indeed, at the height of the financial crisis the BBA, which had been releasing the Libor fixing on a daily basis, suddenly stopped publishing the data in an effort to stop blind panic setting in. It is inconceivable that compliance officers and supervisors were not aware of the abuses in the Libor market, yet no one did anything to curtail what we now know was fraudulent activity.
It is almost certainly too late to draw in more senior officials of Barclays, UBS and other banks involved at this late stage. One just hopes that Green continues to pursue the other allegations against former Barclays executives over excessive commissions made to Middle East investors during fund raisings in 2008 and 2009. There have been suggestions that to do so might affect Britain’s relations with some significant inward investors.
Cleaning up a tarnished financial system and making the top bankers involved face similar justice as their underlings is the least that ordinary citizens should expect.
Continental divide
SO much for the power of the press. This paper has made no secret of its objections to the ‘merger of equals’ between the London Stock Exchange and deutsche Boerse. It is opposition shared with several City grandees who unfortunately decided to hold their tongues and hoped the regulators blocked the deal.
If the current shape of the deal holds, UK investors in the LSE, including Qatar with a 10.3pc stake, will have no objections having voted almost unanimously to press ahead.
There is no reason to think that German investors will cast ballots any differently. Politicians and regulators are a whole different ball of wax. Brexit has raised serious questions as to whether Germany will want the headquarters of the merged exchange to be in London as previously agreed. In the generally combative post-Brexit atmosphere the very idea of euro-denominated trading being conducted outside the Eu will be considered anathema. Investors may say yes, but euro area nationalism could well close down the whole transaction. If that is the case it could leave the Americans, in the shape of the Chicago-based CME or at a later date Atlantic-based ICE, slugging it out.
Such a deal could be the first sign that London is looking beyond the 500m people in the single market to an ever-closer relationship with the English-speaking world.
Travel embargo
GOLDMAN Sachs managed to find the odd £500,000 when it came to supporting the failed remain campaign in Britain. But when it comes to fund management it is embracing austerity.
It is reported from new york that 2,000 staff at sub-performing Goldman Sachs Asset Management have been ordered to curtail their big spending habits including all travel except when it is essential to meet clients or win new business. The strictures follow a sad looking performance from GSAM’s flagship bond fund.
Long gone are the big paydays when GS could create a bond for one client John Paulson, betting against the sub-prime mortgage market, and sell it on to another at RBS. Harder times.