Belfast Telegraph

Barclay's credit outlook downgraded

By Jamie Grierson

British banking giant Barclays today saw its credit rating outlook downgraded to negative to reflect concerns over the impact of Bob Diamond's shock resignation.

Ratings agency Moody's said the departure of Mr Diamond, as well as chairman Marcus Agius and chief operating officer Jerry del Missier, in the wake of the rate-rigging scandal could lead to the break up of its powerhouse investment arm.

The cut - from stable to negative - comes ahead of a vote among MPs to decide whether Parliament or a judge should stage an investigation into the Libor-fixing affair, while George Osborne has accused Labour of being "clearly involved" in it.

Ex-Barclays chief executive Mr Diamond yesterday admitted feeling "physically ill" when he discovered traders had fiddled the key rate but denied he was "personally culpable" for their actions.

Explaining its decision, Moody's said shareholder and political pressures could "lead to broader pressure on the bank to shift its business model away from investment banking and reform perceived failures in its business culture".

The agency added: "Although this could have potentially positive implications over the longer term, the uncertainty surrounding such a change in direction is credit negative in the short term.

"In addition, Moody's believes that the bank could be challenged to replace the three senior staff and in particular find a new chief executive who not only has a sufficient understanding of the investment banking business to run Barclays, but also has the credibility and ability to swiftly address the weaknesses that the Libor incident revealed and stakeholders' perceptions of the investment bank."

Moody's said that Barclays' ratings could come under further pressure if the bank proves unable to restore a stable management structure over the coming months.

Mr Diamond yesterday blamed a "series of unfortunate events" for his shock departure as he fended off calls to give up his multimillion-pound bonuses.

Mr Diamond told MPs that Bank of England deputy governor Paul Tucker had relayed to him concerns in Whitehall about Barclays' high Libor rates, in a phone call in October 2008.

He believed Mr Tucker was trying to warn him that "there are ministers in Whitehall who are hearing that Barclays is always high, that could lead to the impression that you are not funding yourself".

But he told the Treasury select committee: "My recollection is Paul did not mention who he was referring to or I would have put it in the note."

Pressed by Tory committee member Michael Fallon on whether Mr Tucker could have meant the then Cabinet Office minister Baroness Shriti Vadera, Mr Diamond said he would only be "speculating".

Shadow chancellor Ed Balls and Lady Vadera have denied speaking to Mr Tucker about Libor.

But Mr Osborne told The Spectator today: "As for the role of the Labour government and the people around Gordon Brown - well I think there are questions to be asked of them.

"They were clearly involved and we just haven't heard the full facts, I don't think, of who knew what when."

Labour and Westminster's minority parties will today make a final push for an independent "forensic" judicial public inquiry, claiming it is the only way to restore public faith in the disgraced industry.

But the coalition insists a parliamentary investigation is the best way to get speedy recommendations that can be included in a banking reform Bill early next year.

Labour leader Ed Miliband insists the two-part judicial inquiry he is pushing for would report back on Libor rate-fixing by the end of the year before going on to look at wider issues. The whole thing would be wrapped up by summer 2013 and the cost would be met by the banking industry, Labour's motion says.

It has been backed by the DUP, SNP, SDLP, Plaid Cymru, Green Party and Independent MP Sylvia Hermon.

A Labour source said: "This shows the broadest possible coalition has come together in favour of what the public wants: an independent, judge-led public inquiry.

"It is now time for Conservative and Liberal Democrat MPs to show their support."

But the motion is expected to be defeated by the coalition and Mr Miliband is keeping his cards close to his chest over whether he would oppose the Government's move for a parliamentary inquiry.

A senior Labour source insisted they would spend the remaining hours ahead of the vote trying "to convince Liberal Democrats and Conservatives to back the will of the public".

The man chosen by the coalition to chair the parliamentary joint committee - the chairman of the Commons Treasury Committee, Tory MP Andrew Tyrie - has said he will not go ahead unless there is cross-party consensus but the Government is expected to find a replacement if that happens.

Mr Cameron insisted yesterday there was no difference between him and the opposition on the seriousness of the rate-rigging scandal.

"It is outrageous, frankly, that homeowners may have paid higher mortgage rates and small businesses may have paid high interest rates because of spivvy and probably illegal activity in the City," he said.

"People want to know that crime in our banks, crime in our financial services, will be pursued like crimes on our streets."

However, he said he believed that a parliamentary inquiry was the quickest way to get to the bottom of the problems.

"The most important thing about an inquiry is that it is swift and decisive, set up as fast as possible, gets going as fast as possible, reports as fast as possible - transparent and open at every stage," he said.

"That's why I favour a public parliamentary inquiry rather than a judge-led inquiry."

MPs on all sides are expected to be whipped to back the party line in the votes.

Moody's downgrade to the outlook means Barclays could see its actual rating downgraded in the future, which would lead to higher funding costs for the bank.

Higher funding costs at Barclays could lead to higher costs for its customers on the accounts, loans or mortgages they hold.

Another top ratings agency, Fitch, said the impact of the Libor investigation does not currently alter its view on Barclays' credit ratings.

The agency said political, regulatory and reputation risks for Barclays had increased due to the resignation of senior figures, settlements with regulators and the ongoing investigation into Libor practices.

But it said the long-term implications are unclear.

The resignations do create risk, Fitch said, but it added that Barclays is a large firm with experienced managers capable of running its various businesses day-to-day.

The agency said: "It is premature to speculate about any change in strategic direction by new senior executives.

"Fitch's view is that the near-term focus of a new team will be on issues of corporate governance, risk management, operational controls and regulatory compliance."

Standard and Poor's ratings agency also revised its outlook for Barclays to negative from stable, due to Mr Diamond's resignation.

The agency said: "We believe that Mr Diamond was closely related to the growth and relatively resilient performance of the investment bank, having led the investment bank for a number of years before becoming chief executive at the start of 2011, and was supportive of its strategic prominence within the group."

It added: "The negative outlook reflects our view of the current management flux and near-term strategic uncertainty which has arisen from the revelation of poor practices and weak compliance in relation to an industry-wide review of inter-bank offered rates."

Belfast Telegraph