Bankers face the prospect of jail as Serious Fraud Office launches criminal probe into interest-rate fixing at Barclays

Bankers face the prospect of jail as Serious Fraud Office launches criminal probe into interest-rate fixing at Barclays

By James Salmon

PUBLISHED: 08:53 EST, 6 July 2012 | UPDATED: 18:55 EST, 6 July 2012

Hearing: Former chief executive Bob Diamond left Barclays over the matter, before appearing before MPs this week

Furious shareholders in Barclays are demanding the bank strips disgraced ex-boss Bob Diamond of his entitlement to an £18million bonus.

The row emerged as the Serious Fraud Office confirmed it is pursuing criminal investigations against bankers involved in an industry-wide conspiracy to rig crucial interest rates.

The SFO failed to conduct an inquiry last year because of lack of funding; its budget has been cut by 38 per cent over five years.

It has been sharing information with the Financial Services Authority from its investigation into Barclays and other banks thought to be caught up in rate-rigging.

Meanwhile, leading City investors say Mr Diamond, who quit as Barclays chief executive this week over the rate-rigging scandal, should not receive a penny.

Joanne Segars, chief executive of the National Association of Pension Funds â€" one of the most powerful shareholder groups in the country â€" said: ‘Shareho lders, including pension funds, have been negatively affected by their investments in Barclays.

‘This whole issue has been deeply damaging and raises questions about previous pay which now need answers. Any severance payments to top staff must be kept to a contractual minimum.’

Mr Diamond has pocketed more than £120million from Barclays since 2007, while pension savers and shareholders â€" including 719,000 small private investors â€" have seen the value of their holdings plunge.

Barclays is under pressure to claw back the potential £18million payout to Mr Diamond, who quit on Wednesday after the bank was fined £290million because corrupt traders had made huge profits by secretly manipulating Libor, a key lending rate.

As the SFO prepares its investigation, Labour leader Ed Miliband continued to push for an independent inquiry into the banking scandal despite MPs rejecting the demands.

The Labour leader said that while the party would cooperate with a parliamentary investigation, its remit was too "narrow" and a judge-led probe was still needed.

Mr Miliband also defended the conduct of Ed Balls after the shadow chancellor engaged in a bitter war of words with his opposite number George Osborne in the Commons.

It followed an interview with the Spectator where Mr Osborne said former prime minister Gordon Brown's inner circle had 'questions to answer' over apparent pressure on Barclays to post lower Libor rates during the credit crunch.

Under fire: Barclays former chairman Marcus Agius (right) with former CEO Bob Diamond (centre), and former chief executive John Varley (left)

Bank of England deputy governor Paul Tucker and Barclays chairman Marcus Agius, who announced his intention to resign after a replacement for Mr Diamond is found, will give evidence on the rate-rigging scandal to the Treasury Select Committee next week.

Mr Tucker was dragged into the affair by Mr Diamond, who revealed a record of a conversation they had in October 2008 in which the deputy governor relayed concerns in Whitehall about Barclays' high Libor rates.

The American banker sa id Mr Tucker was trying to warn him that "there are ministers in Whitehall who are hearing that Barclays is always high, that could lead to the impression that you are not funding yourself".

Barclays was dealt another blow yesterday as agencies Moody's and Standard Poor's downgraded their outlook for the bank's credit rating in the wake of Mr Diamond's departure.

The agencies said the departure of Mr Diamond, as well as Mr Agius and chief operating officer Jerry del Missier, could lead to the break-up of its powerhouse investment arm.

Appearing before the Treasury Select Committee earlier this week, Mr Diamond was savaged by some MPs.

Labour MP John Mann said Mr Diamond had been either ‘complicit in what was going on, or grossly negligent, or grossly incompetent’.

Backing: Ed Miliband (left) has defended Ed Balls (right) after he engaged in a bitter war of words with his opposite number George Osborne in the Commons

But the former boss said he had been ‘physically ill’ when he learned of the behaviour of traders who rigged the Libor rates, had known nothing about it before last month, and did not feel personally to blame.

Mr Diamond said emails showing that traders fiddling the rates had told each other ‘this is for you big boy’ and promised bottles of Bollinger champagne had been ‘reprehensible’.

But he suggested other banks had been manipulating their rates while Barclays was telling the truth at the height of the financial crisis.

Barclays has been fined £290million by regulators after its traders were revealed to have spent years fiddling the rate, based on individual banks’ own declarations of what they were paying to borrow.

Mr Diamond faced the most intense questioning from MPs over a key phone conversation he had with the deputy governor of the Bank of England Paul Tucker in 2008.

He refused to speculate about the identity of ‘senior Whitehall figures’ he said Mr Tucker told him had been concerned about Barclays’ Libor rate. However, he did suggest that Baroness Vadera, a Cabinet Office minister who was a senior economic adviser to Gordon Brown, had been heavily involved in discussions with the banks at the time.

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