Barclays

Why Is the Libor Scandal So Important to You?

• Finland (which with Holland account for 50% of the Eurozone's AAA rated countries), just says "Ei" to stripping ESM subordination (Bloomberg)
• Libor Rate Scandal Set to Spread (WSJ)
• #ByeBarclays flashmob descends on bank (FinExtra)
• What is financial reform in China? (Pettis)
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• China Beige Book Shows Pickup Unseen in Official Data (BBG)
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• India Said to Pay in Euros for Iranian Oil Due to Rupee Hurdles (BBG)
• Wealthy Hit Hardest as France Raises Taxes (FT)
• Euro Bank Supervisor Faces Hurdles (WSJ)

With Spanish bond spreads over 30bps wider from their open this morning, EURUSD has just broken its 200-hour moving average trading back close to 1.2500 for the first time since the summit. While this is an 75% retracement of the EUphoria, broad equity markets are only modestly off their highs (we assume on rate cut hopes - which is likely helping driven EUR down a little) - and yet corporate and financial credit spreads are at two-day lows. Hope fades even in equity markets where once we dig into the individual indices that most are down modestly (though Spain and Italy are down around 1%). We also note that Bunds have outperformed Treasuries by 20bps from the initial risk-transfer spike on Friday morning - though TSYs are closed today as Bund yields dropped 10bps from open to close today. On a side-note, Spanish 5Y CDS briefly traded wider than Ireland 5Y CDS today for the first time in two years.

UPDATE: *BARCLAYS SAYS HAS RECORDING OF DIAMOND, TUCKER CALL, SKY SAYS

We suspect the Treasury Select Committee hearing with Barclays ex-CEO Bob Diamond will have a few more fireworks than Jamie Dimon's congressional hearings. The Chairman of the committee noted "This is the most damaging scam I can recall" as the goal of the hearing is to ensure "the public know what went wrong and whether the perpetrators have been rooted out." While we will have our own fireworks on this side of the pond, we suspect the live stream below will contain more than a few as the independence of Libor remains in question.

Paul Tucker, the Bank of England executive at the center of the Barclays/Diamond trigger-conversation, has issued a statement requesting a Treasury hearing to show his "keenness to clarify the position with regard to the events" of that hanging chad of a phone-call. What is most troublesome (for every major banker and politician) is his apparent willingness to take more down with him. As the M.A.D. escalates, MNI reports that minutes from 2007 show Tucker (who was/is in line as we noted yesterday for the top-job once King leaves next year) was fully aware from the early days of the financial crisis that market participants believed Libor was rigged. The Group’s November 2007 minutes, from a Tucker-chaired meeting, state “Several group members thought that Libor fixings had been lower than actual traded interbank rates through the period of stress.” The minutes show that not only was the issue raised back in November 2007 but that the BOE went to great lengths as the crisis deepened the following year to keep its finger on the money markets’ pulse. It seems that instead of mounting the 'plead-da-fif' defense Tucker is coming all-guns-blazing and is willing to drag more names into this miasma as a suicide-bomb of a hearing where the truth is realized could well bring every high ranking banking official to admit the continued unreality of Libor rates.

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• Diamond Would Be Catch for Investment, Private Equity (Bloomberg)
• Investors may shun big Libor lawsuit and go it alone (Reuters)
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As was first reported two days ago, and confirmed today, Barclays' natural response to allegations it single-handedly manipulated the interest rate complex for up to $500 trillion notional in IR-sensitive swaps and other products (it didn't - everyone else did it too), was to drag everyone into the scandal, starting off with the Bank of England (and about to drag Whitehall into it too), and specifically the man who was next in line for governorship of the English Central Bank: Paul Tucker. What does this mean? Well, as we suggested also two days ago, now that the natural succession path at the BOE has been terminally derailed, it brings up those two other gentlemen already brought up previously as potential future heads of the BOE, both of whom just happened to work, or still do, at... Goldman Sachs:  Canada's Mark Carney or Goldman's Jim O'Neil. Granted both have denied press speculation they will replace Mervyn King, but it's not like it would be the first time a banker lied to anyone now, would it (and makes one wonder if this whole affair was not merely orchestrated by the Squid from the get go... but no, that would be a 'conspiracy theory'.) Yet the fact that Goldman is hell bent on global domination by stretching its tentacles into every monetary policy administration is no secret: it is only a matter of time before GS also runs the English CTRL-P macros. More interesting is that in addition to the BOE, Barclays today also dragged America's very own Federal Reserve into the fray.

The FDIC decided to wait with its dose of pre-holiday humor until after the Barclays fixing for today's market close turned out to be spot on. And by that we mean that official release of the US banks' "living will" statements, which as far as we know is about the most worthless exercise ever conducted, and about the dumbest thing to be conceived by that very undynamic duo of Barney Frank and Chris Dodd. Because last we checked, the treatment of living wills in bankruptcy court, where all these firms will end up eventually anyway, is... non-existent. But the real fun is when one actually reads this indicative statement from Citigroup: "Citi is today a fundamentally different institution than it was before the crisis." And that's where we stopped. Because it is banks wasting their time (and taxpayer bailout money) on gibberish like this instead of analyzing the risk inherent in their prop positions that guarantees the next CIO-like blow up will not be just $5 billion but far, far more, and will certainly prove that living wills when one has to equitize tens of billions in unsecured debt are worth exactly didely squat.

Wonder who was pushing Barclays to manipulate its rate? Why none other than the English Fed. From BBG:

• BARCLAYS SAYS BANK OF ENGLAND CALLED ON OCT. 29, 2008 ON LIBOR
• BARCLAYS SAYS DIAMOND MADE NOTE OF CALL
• BARCLAYS SAYS DIAMOND RECEIVED CALL FROM PAUL TUCKER
• BARCLAYS SAYS TUCKER SAID `CERTAIN' BARCLAYS DIDN'T NEED ADVICE
• BARCLAYS SAYS TUCKER SAID DIDN'T ALWAYS NEED TO BE SO HIGH (Supposedly LIBOR)
• BARCLAYS SAYS DEL MISSIER CONCLUDED INSTRUCTION HAD BEEN GIVEN
• BARCLAYS SAYS DEL MISSIER TOLD RATE SETTERS TO LOWER RATES

In other words, a central banks was directly and indirectly involved in manipulating interest rates. Say it isn't so. Fast forward two months when the BOE's Tucker testifies that the Chairsatan made him do it.

After two days of solid gains, European equities continue the upward trend and are seen higher at the North American crossover, with the Basic Materials sector leading the way, followed by financials. The moves in equities follow overnight reports from Chinese press, once again calling for the PBOC to slash their RRR, as well as expectations that this Thursday both the ECB and the BoE will conduct monetary easing, possibly boosting future commodity demand. In the fixed income markets, the European 2s/30s curve continues to see bear-steepening following last night’s announcement from the Dutch Central Bank that has changed Dutch insurers’ Solvency II interest rate curve; modifying the maturities in which the firms must hold assets towards the longer-end. Today also saw official confirmation from the Irish debt agency that they are to return to capital markets with T-bill issuance on July 5th, their first return to the market since 2010. Investor reaction to this news is evident in the shorter-end of the Irish yield curve, where the 2-yr bond yield spread against their German counterpart is firmly indicating the risk of returning to the market; currently wider by around 20bps.

Anyone wondering if the reason why Diamond resigned less than 6 hours ago is because he suddenly grew a conscience, will be disappointed. The real reasons are two: on one hand politicians were concerned he would make it public where all the bodies were buried as reported last night, in the process taking down at least half the English political establishment, obviating his departure from the public eye immediately, and, more importantly, as BBC's Robert Peston reports, the English Fed, that "impartial" and "apolitical" institution known as the Bank of England, got involved. From Peston: "I have learned that Bob Diamond's departure was encouraged by the Governor of the Bank of England, Sir Mervyn King, and the chairman of the Financial Services Authority (FSA), Lord Turner."

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• Wall Street Is Still Giving to President (WSJ)
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• Crisis forces "dismal science" to get real (Reuters)
• Hope continues to be as a strategy: Asia Stocks Rise On Expectation Of Monetary Policy Easing (Bloomberg)

A bottle of Bollinger has brought down Bob. This is just the beginning, because one knows Barclays by definition was not alone. Many, many more banks will emerge, hopefully their bankers were not quite as dumb as Barclays' henchmen to discuss in retainable, email format their plans for interest rate manipulation, although we doubt it. In which case many more executives will fall as all those "conspiracy theorists" over the past 4 years are proven right once again, and as politicians scramble to cover up all loose ends which may expose them as instrumental (and bribed) in the fact that the "market" is once big farce. In the meantime, courtesy of the WSJ, here are the shocked, nay stunned, reactions to Bob Diamond's resignation.

First the Chairman Marcus Agius, and now both Barclays' CEO Bob Diamond and the COO del Misser are quitting. Full sweep.

It's escalating. Following the resignation of Barclays' Chairman this morning, the government announced a twin probe into the Libor system and banking standards; and Bob Diamond (Barclays CEO) is threatening, according to the FT, to reveal potentially embarrassing details about Barclays' dealing with regulators if he comes under fire at a parliamentary hearing on Wednesday over Lie-borgate. Unlike his almost-namesake Jamie Dimon who suffered through the indignity of a congressional probing, Bob has gone all Mutually Assured Destruction with confrontational tactics that could further aggravate the fraught relations between the bank and the authorities. "If he is attacked, he will fight back" seems to be well understood and the key aspect - as we have pointed out - is that if this is pursued too vehemently then the whole house of cards could come down as [regulators and politicians] "likely knew perfectly well those rates were not the ones where banks were prepared to lend to each other". So much was made at the time of several of these short-term liquidity measures as indicative of 'no' stress to the ignorant investing public when credit market participants were well aware of the dismal state of interbank reality - perhaps it is worth a glance at the current levels of Lie-bor (especially relative to EUREPO and CDS curves) to get a sense of just what could happen if the truth was ever allowed out into the public eye. M.A.D. indeed.