Barclays' rate expectations turn into hard times Submitter: "I am going 90 altho [sic] 91 is what I should be posting." Trader C: "When I retire and write a book about this business your name will be written in golden letters." Submitter: "I would prefer this [to] not be in any book!" The investigation On Wednesday the book was not so much written, but thrown at Barclays as it received fines totalling £290m for its role in the manipulation of the London Interbank Offered Rate, more commonly known as Libor, which is used to price everything from home loans to what rate depositors receive on their savings. After a three-year investigation, involving simultaneous probes by regulators across the world, Barclays has become the first bank to throw the towel in and admit that for several years its staff routinely attempted to suppress and inflate a borrowing rate used to price financial instruments worth $450 trillion (£288 trillion). The cache of emails released by investigators from the Financial Services Authority and the US Commodities and Futures Trading Commission build a detailed picture of a bank that went hell for leather to fix the supposedly unfixable. Just how routine the manipulation was is clear from the FSA findings. Between January 2006 and August 2007, the regulator found 111 separate requests by Barclays derivatives traders to submitters asking them to alter the bank's Libor submission. Of these requests, the FSA analysis showed that 70pc led to a different rate being entered than would otherwise have been the case. However, while Barclays is the first bank to admit what was going on, the suspicion is it was far from the only bank fiddling its numbers. Swiss financial group UBS has already turned witness against many of its peers, and HSBC, Lloyds Banking Group and Royal Bank of Scotland have all disclosed they are involved in the investigation. The implications of rate rigging on such a scale are enormous, suggesting that the cost of borrowing across the world could have been set at the wrong rate for several years. In the first half of last year the value of outstanding interest rate derivative contracts was estimated at more than $554 trillion. The conspiracy When rumours first surfaced in the wake of the financial crash in 2008 that some of the world's largest banks had manipulated Libor the claims were met with incredulity. Even experienced traders admitted they did not think it could be done, yet yesterday they were given clear evidence that the impossible had happened. I am gobsmacked. I am absolutely amazed that Barclays staff have been caught red handed openly asking for Libor to be changed," said one money markets banker, who has worked in the City for more than 20 years. As yet, there is no public evidence of banks acting in concert to push Libor up and down and many think that as damning as the Barclays evidence is, it does not prove a wider conspiracy. It is clear from the emails uncovered that Barclays staff asked for Libor to be manipulated on behalf of traders at other banks. Dude. Come over one day after work and I'm opening a bottle of Bollinger," was the email sent by one trader at another bank thanking a Barclays trader for getting the bank to lower its rate. However, there is no smoking gun suggesting this spread into a wider conspiracy at the highest levels of the banking industry to launch a co-ordinated effort to manipulate rates. In part this is because such a conspiracy is unlikely given the differing interests of rival banks. For instance, while one bank may benefit from lower interest rates, another may prefer higher rates. The Libor setting process itself is also meant to be designed to prevent a concerted attempt by banks to move it. After submissions are received by 11am, setters eliminate the highest and lowest 15pc of the quotes, calculating an average using the remaining figures. I still don't think you are going to find that banks acted together. It would be too difficult to pull off," said one former trader. With investigations continuing into more than 20 banks however, no one is yet prepared to discount the chance that a conspiracy could have existed. The fear factor In the 12 months leading up to the September 2008 collapse of Lehman Brothers, banks became increasingly fearful about market perceptions of their financial strength. Inside Barclays, CFTC and FSA officials uncovered a culture of paranoia and fear that the bank was seen as a Libor outlier as its submissions were substantially higher than its peers. According to the CFTC, senior managers started using the phrase "head above the parapet" to describe the way they felt Barclays was damaging itself and creating a perception it was more risky than other lenders through its high Libor submissions. It is unclear exactly what was said, but the FSA makes clear that concerns among top executives were transmitted all the way to the Libor submitters. Senior management's concerns in turn resulted in instructions being given by less senior managers at Barclays to reduce Libor submissions in order to avoid negative media comment. The origin of these instructions is unclear," said the FSA. Unclear as it may be as to where such a directive might have come from, the clear inference is that some of those working on the executive floor of Barclays's Canary Wharf headquarters have questions to answer. People should be considering resignations. This has happened under the board's nose. Where is the accountability?" said one Barclays investor with a large holding in the bank. Safety in numbers? One factor chief executive Bob Diamond and the rest of the Barclays management team may be counting on is the fact that nearly every major bank around the world could well be found to have engaged in similar behaviour. In the meantime, Mr Diamond and his senior lieutenants looks exposed, particularly given the drubbing the bank recently received over its pay arrangements, which led to an unprecendented shareholder revolt in March. If the bank can limit the fallout it is possible the managers may be able to put this behind them, but if the cost of the scandal were to grow their positions could become increasingly tenuous. Barclays, along with other lenders, has already been named in a range of investor lawsuits connected to Libor manipulation. A spokesman for the bank said it intended to vigorously defend these actions, but after yesterday's revelations this could be significantly more risky than it was. There are also the risks that could come from any criminal trials. As yet, none of the Barclays staff implicated in the manipulation have been arrested. But were criminal action to be brought against any of those involved there is potential for the bank's problems to spiral.