As you will know, Barclays has been fined £59.5m by the FSA and $200m by the CFTC for manipulating Libor. Penitent, Bob Diamond has given up his bonus. So far, so painless. Barclays' share price hasn't really budged.
There's a chance, however, that this is just the start of bigger problems to come down at Barclays Capital.
The catalyst for these bigger problems is likely to be the incriminatory emails written by Barclay's Libor traders. Much like Fabrice Tourre's emails at Goldman Sachs, or Henry Blodget's emails at Merrill Lynch, they seem bound to capture public attention, and to create outrage about the diminutiveness of Barclays' fine - equivalent to a mere seven days' revenues in the investment bank.
The CTFC tells of emails sent by Barclays traders, saying:
The FSA goes into a little more detail and provides a little more context:
"Derivatives Traders at Barclays enter into interest rate swaps as counterparties to Barclays’ clients (in order to facilitate transactions for clients) and in order to manage interest rate risks. Derivatives Traders at Barclays may also develop trading strategies by which they hope to make a profit from interest rate movements. Those strategies might involve building up certain “positions”, for example by entering into several contracts paying fixed rates," it points out.
It adds that: "On occasion, Barclays’ Derivatives Traders’ positions were such that they stood to benefit from the difference between certain maturities of LIBOR or EURIBOR rates (the “spread”).... Barclays’ Derivatives Traders therefore had a vested interest in the final benchmark LIBOR and EURIBOR rates on any given day."
The FSA has emails showing that BarCap's traders deliberately altered Libor with a view to making money for themselves or their clients. It relates email exchanges such as:
“The big day [has] arrived… My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?”
Barclays' LIBOR Submitter:
“I am going 90 altho 91 is what I should be posting”.
“[…] when I retire and write a book about this business your name will be written in golden letters […]”.
Barclays' Libor Submitter:
“I would prefer this [to] not be in any book!”
“If it’s not too late low 1m and 3m would be nice, but please feel free to say “no”... Coffees will be coming your way either way, just to say thank you for your help in the past few weeks”.
Barclays' Libor Submitter
“Done…for you big boy”.
What is the worst case scenario?
86% of Telegraph readers think he should. Do you think Bob will be compelled to leave?
Bob's bonus has been clawed back. The bonuses belonging to all the traders involved should clearly be clawed back. Barclays' remuneration report states that it will clawback bonuses following: "Employee misconduct, harm to Barclays reputation, material restatement of Barclays financial statements, a material failure of risk management or a significant deterioration in the financial health of Barclays."
This is the real danger in the Libor case. As the Financial Times' Lex column noted back in February, manipulating Libor has enormous implications. There are around $350tn worth of Libor-linked products globally.
"Should a bank or two be found guilty of manipulating the rate by, say, 0.03 percentage points over 10 years, the theoretical compensation could be $1tn – equivalent to the entire market capitalisation of the FTSE Eurofirst 300 banks index," the FT observed.
In this context, Barclays' fine looks tiny. The bank seems to think it's escaped any further repercussions: "“The events which gave rise to today’s resolutions relate to past actions," says Bob Diamond in a statement on its website.
But, this could very easily be the start of something far more costly for Barclays. For example, what if the counterparties and individuals who were adversely affected by Barclays' Libor manipulation decide to extract damages from the bank? What then? This week's fine may just be the start.