How close was Barclays to the abyss in 2008?
Today’s cache of Paul Tucker emails released by the Bank of England puts the Libor scandal in a rather different context. The big picture here: the post-07 Libor “scandal” is the tree. The concerning financial health of Barclays Bank in October 2008 is the woods.
The now deputy governor of the Bank of England is shown to be exchanging emails about Barclays’ financial position from a full week before the famous conversation that some have depicted as a Labour plot to illegally to manipulate Libor.
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Email from Paul Tucker to Bob Diamond and Jon Varley
Sent: Oct 22 2008
Subject: “Cld I talk to one or other of you about libor pl.
Sorry to bother you but I think mark d is away. Its a slightly sensitive point
Thanks
Paul
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Sent: 25 Oct 08
To: Diamond, Bob
Subject: Struck that your govt gnteed bond was Issued at around 140 over gilts
That’s a lot, Paul
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Ahead of the testimony here are my main readings of those emails and of the emails between Mr Tucker and Jeremy Heywood, Cabinet secretary at the time.
1. It’s clear that Tucker had serious concerns about Libor from 22nd and Barclays funding from 23/24 October 2008.
2. Intriguing that Barclays President Bob Diamond and not CEO John Varley replies to Paul Tucker when concerns are first expressed.
3. On 24 October, 2008 (a week before Abu Dhabi capital injection that prevented need for government capital) Tucker asks for meeting to understand where Barclays got its pre-crisis funding from.
4. The next day, Tucker emails Bob Diamond again, noting that it’s then government guaranteed (Under the Credit Guarantee Scheme) debt traded 140 basis points above gilts. “That’s a lot,” he writes to Diamond. In simple terms, why was Barclays paying so much for interbank funding that was guaranteed by the government. Despite this it doesn’t seem like Bob replies to this strong message of concern until the next day, Sunday 26th, saying he’s in London.
5. “The [Govt] gtee has allowed Barclays and HBoS to achieve much greater size than would have been achievable without the gtee”: Bob Diamond quotes a Barclays manager reference to the Credit Guarantee Scheme. This from an email Bob sends to Paul Tucker makes it much harder for Barclays to continue to say “we weren’t bailed out”.
6. HBoS/Barclays government guaranteed bank bond issues are say Bob to Tucker: “q a positive development actually that you and the government should feel pretty good about”. It does rather illustrate the extent of the acute concern from government as well as the Bank about Barclays in October 2008.
7. The emails with Jeremy Heywood show the real context for these Bob Diamond emails. On October 13, the day after the Big bank bailout/ part nationalisations had been finalised with late night pizza at the Treasury, Paul Tucker’s email to Heywood: “Let’s hope it works!!”
8. A week later Jeremy Heywood starts to get extremely concerned about Barclays funding costs and rising Libor, worrying that it is not working. On October 21, Tucker explains to Heywood that “only HSBC in sterling” were enjoying flight to quality flows amongst British banks (ie. not Barclays.)
9. Heywood’s key bit of info about Libor that starts all this off comes “From the money market trenches” not ministerial concern on October 22. In his testimony, Paul Tucker told the Committee that it was “absolutely not” the case that Ed Balls, any government minister, and indeed any civil servant was trying to get him to get the banks to manipulate Libor down.
10. As for Shriti Vadera, Paul Tucker says he didn’t even meet her during the crisis period. He said his main contacts were three senior civil servants. So neither Bob Diamond nor Paul Tucker, nor anything in released emails have backed up the suggestion that Labour ministers were involved in Libor manipulation, as has been suggested by Government ministers and MPs
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