Thursday 28 June 2012

How did Barclays make it through that dark days of 2009?

So back to 2007 and the heady days as the crisis which ash felled the world brewed. of course, as we blogged here, it was reasonably obvious a bust would come, although the extent of it was under-estmiated by several fold.

However, if you were a Bank you could see the leverage wall collapsing, worse events took place as time wore on in 2008 and 2009; Banks started going to the wall for lack of liquidity. Fear of lending to one another gripped the market and we had a credit crunch.

The lack of liquidity could kill a bank, even a huge one like Wall Street leviathan, Lehman Brothers. It becamse crucial that Banks knew who could still borrow, who was still 'safe.' One such bank as risk was Barclays.

And now it come to light that they were consipirng to affect the LIBOR rate, to show them in a better light, to show the market they were still a trusted bank perhaps. Barclays makes much of its ability not to tkae a Government stake in 2008 - it did really via Qatar, just not a UK stake. Barclays share price went from 350p to 60p in a few weeks. How much of an imapct did this LIBOR manipulation have here (and follwoing this logic through, save the British taxpayer even more money, albeit by potential deception?)

 Senior Barclays directors were conniving in trying to fix the market for Libor. It maybe that this will only ever be viewed as a kind of day trade strategy where they sought overnight margin from a rate that benefitted them and their loans versus other market participans - but I wonder if this does go higher up the Bank to support the macro position described above?

By whistle-blowing Barclays are probably covered against future investigations and the other Banks will soon get their own place in the limelight of shame. It's a sad story though and shows that even the heart of the markets cannot be trusted, a sad day for financial capitalism and the reputation of London - but a better day hopefully as it lead to positive changes at the Banks (or their regulators keeping a better watch).


Demetrius said...

As someone who has been wailing for a long while that the reason governments could not do much re money, interest and investment has been that have lost control. This business is another key element in that loss of control.

Anonymous said...

UC, it should have been obvious that when a lobby group are demanding far less regulation that they doing so in their own interests (especially those senior managers and directors who would automatically have increased bonuses with "increased profits") they were on a win win situation if they made big profits they got big bonuses and if they lost a lot of money the government would bale them out, because they were too big to fail. Maybe if they wanted to gamble the "government" should have adjusted their potential liabilities accordingly.

BigBadBank said...

"By whistle-blowing Barclays are probably covered against future investigations" - Long BARC then.

Anonymous said...

The whole lot of 'em are corrupt spivs. Pump'n'Dump, market makers shaking out retail investors, collusion, false-markets, insider-dealing, unknown risk, greed and sheer incompetence.

But all the while the regulators had been captured and the politicians were in the cabal or were bought and paid for.

There needs to be plenty of jail time handed out.

Anonymous said...

LIBOR is only a benchmark, a "finger in the air" calculation. Real interest rates are based on them but need to be traded on the open market. So is LIBOR really that important at the end of the day? The BofE base rate is a similar bench mark - and it is also more or less plucked out of the air.

Thing is if LIBOR is too high (i.e. way above the rate at which the "lender of last resort" BofE would bail out the banks) then loan rates to consumers also become ridiculously high. So were Barclays really just attempting to manipulate LIBOR back down towards reality so that they could trade LIBOR based loans at sensible rates durign the credit crunch?

Seems to me that LIBOR had lost its purpose and escaped reality during late 2007 because it didn't reflect the price at which banks could obtain money - only the price at which banks could obtain money from other banks. The BBA didn't see that particular problem coming so LIBOR rose to daft levels.