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Saturday, 20 September 2014

Peters: Much ado about Libor

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The Libor scandal rolls on. I must confess that I seem to have underestimated the depth and the pervasiveness of the problem but, more to the point, I underestimated the vitriol which is gushing from all ends of the spectrum and most vociferously by those who know least about it.

Anthony Peters, SwissInvest Strategist

Traders tell me that Libor has been massaged for as long as it has existed – the term “fixing” does not come about by accident – but I had, in my thinking, not included the huge impact Libor has on the leveraged derivatives markets and hence I had missed the link between the clearing banking and the investment banking functions.

The Chinese Walls which should have existed between the banks’ treasury and their asset and derivatives traders were manifestly either  missing or breached but as immoral as all the activities were – there were and still are plenty of those about – there is nothing clearly illegal. Detailed facts available to us are scant and although we know that there was something deeply rotten in the state of Libor, I suspect that the outrage exceeds the events. To me, the mis-selling of interest rate hedge products to SMEs, the lesser of the breaking banking scandals, is far more distasteful.

On Libor scandal: I underestimated the vitriol which is gushing from all ends of the spectrum and most vociferously by those who know least about it

Alas, Marcus Agius, chairman of Barclays, has fallen on his sword. No doubt the wrong man for the wrong reason and Bob Diamond lives to fight another day. It might even be another few days, but I think he is mortally wounded and in time the Barclays board will regret having permitted Agius to sacrifice himself. Diamond, surely not related to the 1930s American gangster Jack “Legs” Diamond but with the same kind of swagger, is running around with a fly-swat crying “Not me, Mi’lud”.

I could imagine that he might find himself as last of breed as the investment banker who rises to run the shareholding clearer too. He might quite honestly be able to fend off the attack over Libor massaging, but the messy sale of interest rate collars to the public cannot easily be wiped off his shoes because it would have been incumbent upon him to sign off the mandatory appropriateness policy for structured products.

Bob, yer toast.

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