Barclays pay-off to spark uproar Showdown with ministers if ex-boss gets big cheque

BARCLAYS could be heading for a showdown with the Government over the pay-off for former chief executive Bob Diamond, who dramatically quit last week in the wake of the Libor rate-rigging scandal.

The Treasury is understood to have made informal indications to the bank that Diamond must not receive a large sum.

Sources say that Barclays giving Diamond a large severance package is “unacceptable given the circumstances”.

He resigned on Tuesday after a week of intense pressure that began when Barclays was fined £292 million by UK and US regulators for manipulating key interest rates.

Barclays is currently working on the terms of Diamond’s departure package.

Under the terms of his contract, he is entitled to a “golden goodbye” of £1.35 million on leaving the organisation.

Additionally he has shares, either already in his possesion or due to be awarded to him, worth £22 million at current share prices.

Key investors say they are waiting to see details of the deal being put together for Diamond before they pass judgment on the severance package.

Barclays’ chief operating officer Jerry Del Missier also resigned on Tuesday.

Chairman Marcus Agius had quit the day before, only to be brought back in the wake of Diamond’s departure. He has been entrusted with finding Diamond’s replacement.

With the bank’s leadership in disarray, Agius, Barclays finance director Chris Lucas and senior independent nonexecutive director Sir Michael Rake are in the process of contacting analysts and investors in order to reassure them.

On Friday, the Serious Fraud Office announced it was launching a criminal investigation into the banking sector over allegations of widespread manipulation of the London Interbank Offered Rate (Libor).

The rate is used to price loans, mortgages and determine returns on investment products around the world.

Tomorrow Paul Tucker, the Bank of England’s deputy governor, will give evidence to Parliament’s Treasury Select Committee (TSC).

The MPs plan to grill him on what he knew about Libor rigging and in particular his conversations with Barclays about its Libor rates at the height of the credit crunch.

Agius will testify on Tuesday and it is understood that the TSC also wants to see Financial Services Authority chairman Adair Turner and John Varley, Diamond’s predecessor at Barclays, give evidence.