IT took a few days too long but the Libor scandal has finally claimed its first senior scalp. Marcus Agius, Barclays’ chairman since January 2007, has quit, in a bid by the firm to show senior staff are taking responsibility for the rate-rigging scandal. That was the right thing for Agius to do: the Libor manipulation is a disaster, and while many other banks are also under investigation, someone at Barclays needed to pay.
This scandal marks a truly horrendous nadir for the City and the banking industry’s reputation. Unlike previous lawsuits and scandals, this time there are no redeeming circumstances, no mitigating factors, no other side of the story: a key, trusted interest rate, the supposed gold standard for interbank lending, was ruthlessly distorted. Many of those involved actually thought manipulating Libor was some sort of joke, if their emails are to be believed. It’s a pretty disgusting tale.
The job of the next chairman will be to decide whether more departures – and perhaps even a complete clear-out – are needed to stabilise the company’s reputation. The big question surrounds Bob Diamond: far from being the monster he is often depicted as, he is a formidable, entrepreneurial figure who has built Britain’s first successful investment bank since SG Warburg. He also built BGI, which was sold for a fortune to BlackRock. He was instrumental in snapping up Lehman US for a song. He is feared and respected by rivals. This record is why many shareholders would like to keep him, though that would undoubtedly change soon if the scandal continues to build. Many are also worried that a complete clear-out could leave Barclays rudderless and bereft of a talent.
Yet the stark truth is that Diamond’s undoubted ability means nothing when one is confronted with such a major scandal. What did Diamond know, and what didn’t he know? And what did he do about it? One reason bosses are paid so much is that they must take responsibility for the behaviour of their underlings.
Diamond also shot himself in the foot when he said that the time for contrition for banks was over; yet he must have known about Libor by then. It was an astonishingly stupid speech. Diamond’s fate will now be determined by Wednesday’s Treasury Select Committee hearing, which could be the most brutal such encounter to date with any business leader. A lot will hinge on conversations Diamond had with Paul Tucker, the deputy governor of the Bank of England, over Libor a few years ago, and the way this was subsequently interpreted by Barclays’ managers.
Ultimately, the departure of senior staff won’t change the core issue. The Libor system must be reformed to ensure that it is properly reflective of the cost of money. If that is impossible, perhaps because of the changed structure of bank financing and of the money markets since the crisis, there is a case for ditching the metric entirely. The government also needs to legislate if necessary to make sure that deceit of the sort seen with Libor can be prosecuted. It’s the old duck test: if it looks like a crime, and sounds like a crime, then it should be treated as a crime, assuming a fair legal process of course. Crimes should mean prison sentences, not mere sackings or reprimands. Agius’ departure is welcome – but it is merely the start of a painful and lengthy process for the City of London.
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