Barclays and the LIBOR Scandal Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Advantages and Disadvantages

Barclays PLC was one of the largest banks in the United Kingdom. The bank was labeled as the universal bank via independent analysis. One of the main benefits the management of the bank earned was the increase in the profitability and / or decrease in the losses of the firm from derivatives. LIBOR scandal was the series of fraudulent and misleading actions linked to the LIBOR setting process which led to an investigation and litigation processes.

The problem was first came into the knowledge of the regulators when they noticed that the banks were involved in misleadingly inflating and deflating their submission rates in order to earn profits from traders or to give the impressive look of the bank, that they are more creditworthy than before.

There were over 20 banks involved in the manipulating process. It was believed that the investor trust the market rates, the rates at which banks offer loans to another bank. So, the manipulation means trillions of dollars of financial instruments transactions were traded on false rate. That shaken the trust of the investor over the bank offered rates and in the financial markets.

The manipulation in the LIBOR submission rates could bring benefits to the bank in the era of great economic recession of 2008. The main objective of the banks was to slightly manipulate the rates they were submitted and the rates they were actually paying in transactions so that they were able to change the profitability of the ban, so that they present a bright picture of the bank’s financial performance and financial strengths even in the era of a great recession.

The financial market was in a great shock when the news about the manipulation appeared in the media. The investors had great concern over the traded transaction of the financial instruments.

It was believed that manipulation of 0.01% of rate could make up a couple of million dollars. Since, the Barclays bank has followed the same strategy from 2005 to 2009. In that period, trillions of dollar transactions were placed.

Responsibility of the Manipulation

Since, there were over 20 banks, including Barclays shared this wrongful act in order to increase its profitability in the long run and show to investor that the bank is performing extraordinary even in the case of economic recession. The banks are supposed to submit the actual interest rate they are actually paying, or would expect to pay in the future, for borrowing from other banks.

The LIBOR was supposed to be an assessment technique to assess the financial system’s health, as in the case when banks feel more confident over the circumstances, they normally report a lower number.

In case when the banks feel a low level satisfaction over the financial systems, they report higher interest rate number. In the mid of 2012, various criminal and fraudulent settlements and transactions by the management of the Barclays Bank exposed significant fraud and the conflict of interest between the regulatory bodies and the banks, leading to the scandal.

After the occurrence of that incident, the regulatory bodies started the investigation and found that from 2005 to 2009, derivative traders in the United States and the United Kingdom, approached to the Desk, in order to submit a specific rate or adjust its already submitted rates. The traders argued that there is a difference in the rates provided by the bank and the rates in which the banks were actually trading.

After the investigations, the newly appointed CEO, Mr. Robert Diamond was found guilty of doing this fraudulent activity to deceive the financial market over its performance. But he refused to accept any charges against him, rather than he put his blame over his some employees for the violation of laws and regulations related to derivative trading related LIBOR rate.

The management of the Barclays bank tried to deceive its positioning and improved their profitability of their particular trading activities.

In the mid of 2012, after the great pressure from the media and the investors in the management of the Barclays PLC over the potential fraudulent activities, the management of the bank admitted and self-proclaimed that they were involved in this illegal activity to manipulate the LIBOR- which is a benchmark for over trillions of dollar transactions, just for the sake of maintain and gain profits and/or limit losses from derivative trades.

On the other hand, the management had admitted that from 2007 to 2009, the bank had made corruptly low LIBOR submission rates to diminish all the negative comments prevailing in the market and on the media about the firm's viability during the financial crisis.

After the admission of the management of the bank over the fraudulent activities, the regulators in the United States and the United Kingdom, imposed fines of $450 million. After some days of the legal cases, the CEO, Robert Diamond, had resigned under pressure from the media and the British regulators...............................

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