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Barclays bank’s Libor rate scandals will have far more serious repercussions

July 04, 2012 | About:
Muhammad Bazil

Muhammad Bazil

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Last week, when news came in of Barclays Bank’s Libor rate scandals and consequent £290 million ($450 million) fine, I was sure that the effects of this news would ripple all over the global scene. To my amusement, my speculation has materialized sooner than I expected – perhaps an indication of the weighty nature of the disclosure.

To best understand the issue, a little flashback is necessary:

Apparently, Barclays bank traders knowingly lied to make the bank look more secure during the rickety financial stretch, and in some instances collaborated with traders from other banks to make profit. As the case would be, most of the pressure fell on Bob Diamond. The chief executive, who last year bagged a bonus of £2.7 million, is to waive his bonus this year.

The rest is pretty typical and more or less under the category of routine – Barclays bank issues statements, investigations are conducted, critics perform usual lash outs, and so on. It has now been almost a week since the market caught wind of Barclays bank’s scandals. The ‘routine activities’ have come and gone. What next?

Serious repercussions

Although it is still too early to place all your poker chips on one speculation, signs that the Barclays scandal could invoke serious repercussions are recurrent. Why am I saying this?

The European financial space is a melting pot of emotions right now. Most countries are still reeling in the after-effects of a disappointing financial performance. Moody’s also recently rallied a bearish spirit over supposedly high ranking countries like Finland, France, Netherlands and Austria. To further aggravate the situation, a large section of analysts have been more than pessimistic on Europe’s case. In general, the mood is pretty volatile and I am sure that Barclay’s miscalculated moves have not passed by as welcome news.

Indeed this is true. Barclays bank’s scandal has brought a lot of controversy. The matter has even escalated to the extent of attracting increased government intervention. In typical cases, government always tries to play second fiddle in bank matters. Nonetheless, the prevailing circumstances have prompted it to spearhead some probes into the scandal. The probes have even captured the attention of persons of note like David Cameron, the Prime Minister. Cameron recently revealed that he had launched an inquiry into the whole Libor rigging outrage.

The prevailing set of circumstances only spells ‘serious repercussions’ to me. There is nothing worse than parliament taking on your case. In the process, some politicians attempt to salvage their poor standing with the people by taking it out on you. Do not be surprised to see some of the people tasked with the inquiry taking an evident stand against Barclays. Some may even go to the extent of digging more dirt and looking for other loopholes in Barclays’ structure. There is nothing like a politicized case. It is not only hard to shake off but also in most cases has negative implications on arguably the most important stakeholders of a business – the public. If the inquiry kicks off, the public will have the opportunity to get involved through innumerable opinion polls and public forums. I don’t think I need to explain how this could set Barclays on a sticky stretch.

Internal shakeups

It has also come of note that Barclays’ whole managerial team is in the spotlight. Already, the chairman has quit. Marcus Agius, quit his high standing position over the scandalized rigging issues. At his wake, he has left numerous question marks regarding the management.

Nick Clegg, the deputy Prime Minister, has cited that everyone – including himself – is curious to know the actions that will be taken by other people at senior level. This has placed a lot of pressure on management and it may not be long before the usual blame games and personal press conferences start to roll in. Another government official was more straightforward on the matter: John Mann, the labour MP, said that Bob Diamond should have been the one to take the bullet.

Diamond is under a lot of pressure. This comes after he sent a letter to employees, openly claiming his love for Barclays on two occasions. The thing that came of note, however, was that the chief executive admitted that the scandals happened under his watch. This only makes the situation worse.

Over the coming weeks, I am sure that a few chapters will be added to this story. Nonetheless, Barclays’ fate is pretty one-sided at the moment. The only thing that could change the tide is if another big bank becomes caught up in the same murky waters. This way, the media will momentarily rest their case on Barclays and give it some time to reorganize and come up with a strategy.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

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