Not the finest hour for business tonight.
Barclays has agreed to pay a fine of £290 million after investigators determined that since 2005 Barclays had been attempting to manipulate Libor (the London Inter Bank overnight rate), a key borrowing rate meaning that those paying off mortgages have potentially paid millions in unnecessary extra interest payments.
Barclays also attempted to suppress Libor on other occasions as well as the Euro Interbank Offered Rate (Euribor) to benefit the bank’s interest rate derivatives trades. The Financial Services Authority (FSA), said Barclays’ regulation breaches were “serious, widespread and extended over a number of years”. The FSA proportion of the total fine was £60 million, down from £85 million as a result of full cooperation with its enquiries.
Chief executive Bob Diamond and other senior executives at the bank will forgo their bonuses this year. Diamond got a £2.7 million bonus in 2011. Following on the heels of the so called “London Whale” fiasco at JP Morgan which may cost investors there a cool $4 billion, this news is not what the City needs right now!
On a similar note of extreme greed, this time in terms of management pay and perks at so called GlenStrata – the proposed $65 billion combination of mining giant Xstrata and recently listed commodity dealer Glencore. Xstrata has bowed to pressure from key institutional investors and announced that the retention award for management as part of its merger with Glencore will paid in shares instead of cash and will be subject to future performance targets.
There has been an outcry when news emerged that Chief Executive Mick Davis’ would receive a £173 million “retention package”. In 2011 he received over £18 million in pay and bonus.
The companies tried to reassure investors that $300m of incremental cost savings over two years would exceed the cost of the retention awards.
Qatar Holdings, with a 10% share holding in Xstra announced yesterday that it was seeking improved merger terms and that Glencore should move materially on its price terms that undervalued Xstrata, but yet making clear that they see “merit in a combination of the two companies”. Currently Xstrata shareholders get 2.8 new Glencore shares for every Xstrata share. Qatar wants 3.2 shares. The move signals that the deal is in serious trouble and the chances of it unravelling seem high. If this is the case then Davis and his merry men could lose out on their lucrative “golden handcuffs”. It seems reasonable to offer a retention deal, but with Davis personally getting close to £30 million, the scale seems totally out of hand.
Xstrata shares rose 1. 4% to 797p and Glencore s fell 1.4% to 298p to a new 52 week low and a certainly a lot lower than the May 2011 float price of 530p.
Contrarian Investor UK