Barclays Plc chief executive Bob Diamond quit Tuesday under fire from politicians, the highest-profile casualty of an interest rate-rigging scandal that spans more than a dozen major banks across the world.
“The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen,” said Diamond, 61.
His resignation was a sudden reversal, hours after he said it was down to him to clear up the mess at Britain’s third-largest bank, fined nearly half a billion dollars for its part in manipulating a global benchmark interest rate.
Diamond will appear before a parliamentary committee probing the scandal Wednesday, at which he could reveal details about the bank’s dealings with regulators over the affair.
He had sent a long letter to staff Monday showing his resolve to continue. But he decided to quit later that day after Prime Minister David Cameron and Finance Minister George Osborne announced a parliamentary inquiry into the scandal, a person familiar with the matter said.
Politicians and newspapers have zeroed in on the scandal – which revealed macho e-mails of bankers congratulating each other with offers of champagne for helping to fiddle figures – as an example of a rampant culture of wrongdoing in an industry that stayed afloat with huge taxpayer bailouts.
Diamond’s resignation was “a first step toward that change of culture, that new age of responsibility we need to see,” Osborne told BBC radio.
“The chairman of Barclays phoned me last night to let me know that this was the decision of the board and of Mr. Diamond, and I think Mr. Diamond made the right decision,” Osborne said.
Outgoing chairman Marcus Agius will lead the search for a new CEO, despite having announced his own imminent departure a day earlier, declaring that “the buck stops with me.”
Newly appointed chief operating officer Jerry del Missier, who has for years been a Diamond lieutenant, was also likely to quit, a source familiar with the situation said.
At the time of the misdeeds, Diamond was not yet CEO but was in charge of the investment banking division, where he was known for fostering an aggressive culture.
Barclays has admitted it submitted artificially low estimates of its borrowing costs to calculate interbank rates from late 2007 to May 2009. Large banks’ estimates of how much interest they have to pay to borrow from one another are used to calculate the London Interbank Offered Rate, or Libor, the basis for trillions of dollars in contracts around the globe.
By manipulating the figures, banks could make their balance sheets look better. Barclays says it submitted low figures because it thought rivals were doing the same and higher submissions would have made it appear to be in trouble.
The Financial Times reported that Diamond is threatening to reveal potentially embarrassing details about Barclays’ dealings with regulators if he comes under fire at the parliamentary committee hearing Wednesday, when his evidence will have legal immunity.
A conversation between Diamond and Bank of England deputy governor Paul Tucker in 2008 was cited in documents released by U.S. authorities last week, after which some people at the bank may have mistakenly believed they had been granted permission to falsify the Libor submissions.
The outgoing chairman will appear at the inquiry Thursday.
Opposition Labour Party leader Ed Miliband, who has said he wants to see criminal prosecutions of Barclays bankers, welcomed Diamond’s resignation but said a parliamentary inquiry was not enough and demanded an independent probe led by a judge.“This is about the culture and practices of the entire banking system, which is why we need an independent, open, judge-led, public inquiry.”
Osborne said a judge-led inquiry would take too long to be of use shaping new legislation to tighten rules.
Osborne and Cameron have repeatedly expressed the point that Miliband’s Labour was in power at the time of the wrongdoing.
Anthony Jenkins, currently chief executive of Barclays retail and business banking, is the most likely internal candidate to replace Diamond, said Oriel Securities analyst Mike Trippitt. However, the firm may choose to look outside for a new leader to turn the page on the scandal.
“Promoting an existing manager might not look like it is doing enough to tackle problems with aspects of the bank’s culture which the LIBOR scandal has exposed,” one of the top 25 Barclays investors said, asking not to be identified.
Other names in the frame also include former JPMorgan investment banking co-head Bill Winters and Naguib Kheraj, the ex-Barclays finance director and former CEO of JPMorgan Cazenove.
“I struggle to see many worthy candidates to replace him,” said a top 40 investor. “You must remember that in contrast to RBS, Barclays is two-thirds an investment bank.
“You couldn’t put a dull, boring banker in charge of the beast because you do need someone with a strong investment banking heritage to take the helm.”
Analysts were also surprised that Agius, who will stay until a new chairman is found, would lead the executive search so shortly after Barclays appeared to have sacrificed him in order to keep Diamond.
“The timing is surprising, given the robust response that Bob Diamond and Barclays appeared to be putting up over the last 24 hours,” said Ian Gordon, an analyst at Investec.
Barclays shares, which rose on the news of the departure of Agius Monday, added another 3.7 percent Tuesday morning, rising to 174.7 pence, outpacing a 0.6 percent rise in the European banking stocks index. The shares were still down more than 10 percent from Thursday’s open.
Barclays was fined $453 million by U.S. and British authorities, the first bank to settle in an investigation that is looking at more than a dozen others, including Citigroup, UBS and RBS.
Some analysts say Barclays has been unfairly punished for admitting practices that appear to have been rife across the world’s big banks.