Robert Diamond, who quit this week as chief executive officer ofBarclays Plc, sought to blame other banks for misleading marketsabout their ability to borrow and regulators for turning a blindeye.

Ordered to testify to British lawmakers after Barclays agreed topay a record 290-million-pound ($455 million) fine for rigging theLondon interbank offered rate, Diamond said yesterday he was“disappointed” regulators failed to act on repeated warnings fromBarclays that competitors had lowballed their submissions.Legislators challenged him on why he took so long to uncover hisown firm's attempts to manipulate the rate.

“This isn't just Barclays,” Diamond, 60, told lawmakers at athree-hour hearing of Parliament's Treasury Select Committee.“Throughout 2007 and 2008, no institution of the 16 banks reportingthree-month dollar Libor was at the higher end more consistentlythan Barclays. Barclays was getting questions about why it wasalways high and we were saying, 'We are high because we werereporting at where we were borrowing money.”'

Diamond's comments underscore concern that Libor, the benchmarkfor more than $360 trillion of global securities, has stopped beingan accurate reflection of banks' borrowing costs. Last week,regulators found Barclays had tried to manipulate the benchmark forprofit and to mask its difficulty borrowing money during the creditcrisis.

The scandal has already cost the jobs of Barclays ChairmanMarcus Agius, 65, and Chief Operating Officer Jerry Del Missier,50. At least 12 more banks, ranging from Citigroup Inc. to UBS AG,are still being probed by regulators.

“I'm asking why people at Barclays noticed other people doingthis, but were unable for whatever reason to recognize what wasgoing on internally,” Scottish National Party lawmaker StewartHosie said. There is “a huge amount of unhappiness both inParliament and in the general public.”

Libor is calculated by a survey of banks' daily estimates of howmuch it would cost them to borrow from one another for differenttime frames and in different currencies. Because submissions aren'tbased on real trades, the potential exists for the benchmark to bemanipulated by traders seeking to profit from where the rate isset.

Diamond apologized for the rigging, blaming a group of 14traders out of 2,000, and said the bank had failed in taking solong to uncover their actions. He said he didn't know about theiractivities until a week before regulators published their findings,including e-mails between Barclays traders.

'Physically Ill'

“When I read the e-mails from those traders, I got physicallyill,” he told lawmakers.

Andrea Leadsom, a Conservative member of the committee and aformer Barclays banker herself, questioned why compliance officershadn't been aware of these exchanges, which took place over aperiod of years.

“I want to focus on the criminality,” she said. “Not the issuesof the financial crisis but the actual criminal behavior. Clearlythere was a significant amount of collusion going on.”

Trading-desk supervisors failed to alert their bosses, Diamondsaid. “In cases where that happened, they were not doing their joband that will be dealt with,” he said. Some will be subject tofollow-up criminal probes, he said. “Clearly there was behaviorthat was reprehensible.”

The fact that “some of these things only became clear to Bob”recently “struck me as odd,” said Michael Trippitt, an analysts atOriel Securities Ltd. in London.

Barclays shares rose 0.3 percent to 166.45 pence at 9:07 a.m. inLondon trading today. They plunged 16 percent on June 28, the dayafter the bank's settlement with regulators was announced. Thestock is down 5.5 percent this year, making Barclays the worstperformer in the six-member FTSE 350 banks index.

Moody's Investors Service today threatened to cut Barclay's A2credit rating, citing increased uncertainty for the business giventhe departure of its three top executives. The ratings company cutits outlook to negative from stable, according to a statementtoday.

The FSA has “a number of investigations concerning Libor” beyondBarclays's case, its acting head of enforcement, Tracey McDermott,said on July 2.

The FSA's biggest challenge is that financial services “is nolonger an industry that society respects and has confidence in,”McDermott said. “Last week's penalty should have dispelled” anydoubt of that, she said.

Nationalization Threat

Barclays spoke to the Bank of England, the U.K. FinancialServices Authority, the Federal Reserve Bank of New York and theBritish Bankers' Association 33 times in 2007 and 2008, the lendersaid in an earlier statement to lawmakers.

In those conversations it “consistently” raised concerns thatits competitors were low-balling the rate, the bank said.Barclays's three-month dollar Libor submissions were in the topquartile 89 percent of times from Sept. 1, 2007 to Dec. 31, 2008,the bank said in the statement.

“A number of the firms who were posting had emergency loans,were nationalized or were having trouble funding and yet we wereposting the highest level,” Diamond said yesterday. “We wouldquestion whether some of those other institutions could actuallyget funds at the levels they're posting.”

Barclays also released notes the bank said were written byDiamond following an Oct. 29, 2008 phone conversation he had withPaul Tucker, now deputy governor of the Bank of England.

Tucker called Diamond to inform the banker that “senior”Whitehall officials had asked why Barclays' Libor submissions werealways at the “top end.” Tucker told Diamond that Barclays'ssubmissions didn't always need to be as high as they had beenrecently, according to Diamond's note.

Diamond said yesterday he asked Tucker to tell the officialsthat not all banks were providing quotes that represented the truelevel at which they could borrow money. He said he was alsoconcerned the lender could have been nationalized if it showedsigns of difficulties in obtaining funding.

“If Whitehall then was told Barclays was at the highest inLibor, they might say to themselves, 'my goodness, they can't fund;we need to nationalize them,' as they had nationalized otherBritish banks,” he said. Whitehall is the London street where mostBritish government departments are based.

The conversation between Diamond and Tucker was passed on to DelMissier, who misinterpreted it as government permission to submitlower quotes, according to Barclays.

Diamond said he didn't believe government officials wantedBarclays to “fiddle” with its Libor submissions. Barclays had nodifficulty funding, he said.

Tucker yesterday made a request to appear before Parliament “assoon as possible” to give evidence on Libor, according to astatement released by the Bank of England.

Bloomberg News

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