London: Barclays profited from lowballing its sterling Libor rate, according to explosive new allegations to surface as part of a UK civil case brought against the bank by a care home that has cast a shadow over its former top management.
The bank had an offshore fund named Ricardo into which it paid £130 million of profits from its interest rate derivatives business, the commercial court in London heard on Friday as part of a case that will call as witnesses Bob Diamond, the bank’s former chief executive, and other members of its former executive team.
The Ricardo Master Fund “was an eponymous fund named after Mr Ricci”, the court heard, referring to Rich Ricci, the former co-head of Barclays’ investment banking business and another witness in the case. Jerry del Missier, Ricci’s co-head who will also be called to appear in the case, “described the fund as Barclays’ global interest-rate portfolio”, Justice Flaux said after reading the claimants’ written arguments, before suggesting that authorities in Singapore should be contacted to glean more details about the fund.
Legal arguments filed by the claimants, Graiseley Properties and Graiseley Investments — the owner of Guardian Care Homes —allege that the Ricardo fund “was a direct beneficiary of the manipulation (including downward manipulation) of sterling Libor”.
The written arguments, seen by the Financial Times, cite a report by Clifford Chance, the bank’s law firm, to the Monetary Authority of Singapore, the city-state’s watchdog, into the Ricardo fund. The law firm’s report stated that the profitability of so-called UK Certificates of Deposit Strategy in which the fund invested was “linked to a fall in sterling Libor”.
The law firm’s report cited in the claimants’ arguments refers to a Ricardo Fund internal monthly report in November 2008, just as markets were roiling during the worst of the financial crisis.
That monthly report stated: “The 150bp surprise rate cut by the BoE helped a lot . . . At the very least, Mervyn King gave the Fund its best day as Libor CDs rates dropped 100bp.”
The case is an unwelcome reminder of alleged Libor manipulation for the bank, even though it paid £290 million to US and UK authorities 18 months ago to settle allegations that it manipulated the London Interbank Offered Rate, a key interbank borrowing rate.
As part of that settlement, the bank admitted to lowballing its Libor rate submissions to paint a false picture of its financial health during the credit crisis.
Earlier this week Barclays admitted to participating in a cartel that aimed to manipulate Euribor, the Brussels equivalent, as part of a settlement with the European Commission, the antitrust watchdog. The bank escaped a €690 million fine through an immunity deal in which it provided the commission with information.
The claimants in the care home case allege that they were mis-sold an interest rate hedging product that was pegged to a rate Barclays was manipulating. They have alleged that knowledge of Libor manipulation reached the highest echelons of Barclays management.
“The idea that people in Barclays did not know that there was manipulation of Libor and that it was wrong is simply not true,” Mr Justice Flaux said on Friday at the hearing.
Barclays said in a statement after the hearing that the case had no merit. “This business had a suite of advisers and a lot of financial experience and skill in-house. Barclays understands the client entered into their swap agreements with sufficient understanding to exercise their own judgment as to whether the products would meet their business objectives. This is a significant business which owes Barclays £70 million.”
Barclays declined to comment specifically on the Ricardo fund.