How does Barclays fiddling LIBOR affect you?
You’re really upset about the LIBOR scandal aren’t you? You know what the acronym stands for and everything (London Inter-Bank Offered Rate) and you know about EURIBOR as well (work it out). While you are probably as shocked and disgusted at Barclays’ actions as we are, you are probably wondering whether the scandal currently rocking the financial world (not in a Status Quo kind of way) has actually got anything to do with the money in your pocket.
Without going into too much detail, in case you have been living under a rock, yesterday Barclays was outed as having attempted to/succeded in ‘manipulating’ the LIBOR and EURIBOR rates between 2005 and 2009. While we don’t need to go into the details of what they actually did, the brass tacks of it are that they were trying to cheat and got caught doing so.
The FSA in the UK levied its biggest ever fine on Barclays, but its measly £59.5m fine (reduced from £85m because Barclays were so helpful) pales in comparison to the US Department of Justice fine of $160m. Together with a $200m fine from the Commodity Futures Trading Commission, Barclays are therefore looking at coughing up over £290m in fines. Still, where the UK Retail Banking Business alone made £334m in the first 3 months of 2012 (before accounting for a £300m provision for missold PPI), you can’t expect Barclays to be overly concerned at the wrist slap.
In addition, it is claimed that Barclays were working in connection with a number of other banks across jurisdictions, and more fines and telling off can be expected soon. The Telegraph are currently running a blow by blow account of the scandal live and as it happens. In case you seriously have nothing better to do.
But what about me? Have Barclays screwed me over?
Actually, probably not. Unless you had a buy-to-let mortgage or a subprime mortgage (eg a Paragon one for low credit rated types) at the time, where your interest rate is calculated with reference to LIBOR (often expressed as LIBOR plus a percentage) your mortgage would not have been affected. Even if you did have one of these mortgages, the covert investigation suggests that Barclays were actually pushing the LIBOR rate down, thereby actually reducing your mortgage interest payments.
LIBOR (or EURIBOR) is not normally used for retail savings either, so people with ordinary savings accounts will not have suffered lower interest rates. However, large investors (like pension funds and other financial institutions) who may have invested in bundled mortgage bonds would have received a lower return, if mortgage rates were artificially depressed. Of course, these large investors are the type with deep pockets and grumpy temperaments, so Barclays et al may not yet get off scot-free. There are already murmurings of class actions to sue the bank for damages.
Are they sorry?
Of course they are. Terribly contrite. Barclays Chief Executive, Bob Diamond, said: “The events which gave rise to today’s resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business. When we identified those issues, we took prompt action to fix them and co-operated extensively and proactively with the Authorities. Nothing is more important to me than having a strong culture at Barclays; I am sorry that some people acted in a manner not consistent with our culture and values."
The CEO and three of his cronies have even offered to forgo their annual bonus to “reflect our collective responsibility as leaders.” Bless their cotton socks.
Still, every cloud really does have a silver lining- the money paid in FSA fines will go towards reducing next year’s bank levy charge, paid by all UK banks. Including Barclays…