Libor Manipulation Scandal Stings Barclays and Parliament

Barclays Plc (NYSE ADR: BCS) was dealt another blow Thursday to its already tarnished reputation, as the ripple effects continue from its Libor manipulation scandal.

Moody's and Standard & Poor's, while maintaining their ratings on the bank, slashed their outlook from "stable" to "negative," a precursor to an actual ratings downgrade.

Fitch was a bit more lenient, and left its view unchanged.

All three ratings agencies, however, noted they are keeping close watch on developments at the bank.

All three said the changes stem from the "current management flux and near-term strategic uncertainty arising" from the uncovering of "poor business practices and weak compliance."

The outlook changes came before a crucial vote from Britain's House of Commons on how to investigate the banking industry on the heels of the Libor probe.

The rate fixing investigation has resulted in the resignation of Barclays CEO Bob Diamond, Chairman Marcus Agius and COO Jerry del Missier. It also handed the bank a record fine of $435 million for making false borrowing cost submissions in order to manipulate Libor, the London InterBank Offered Rate.

Moody's wrote in a note that Barclays will have a tough time replacing Diamond in particular. Moody's said it would be difficult to find a replacement who not only has a keen enough understanding of investment banking, but also "has the credibility and ability to swiftly address the weaknesses that the Libor incident revealed and stakeholders' perception of the investment bank."

Parliament Gets Prickly

The British government maintains it has every intention of passing legislation to shield retail customers and investors from the riskier activities in investment banking, a lingering and mounting worry ever since the 2008 financial crisis.

A "swift and decisive" investigation into Barclays is the goal, according to Conservative Prime Minister David Cameron. A panel of lawmakers has spearheaded the process and plans to complete it by year's end.

Barbs flew in Parliament between Labour Party lawmaker Ed Balls and Treasury chief George Osborne as the debate began over how to carry out the investigation. Balls demanded that Osborne withdraw charges that as a former Treasury minister Balls was somehow involved in the Libor manipulation.

Osbourne retorted that no one should take lessons in integrity "from a man who smeared his way through 13 years in government."

And such it went, in proper British fighting fashion. In an effort to halt the ensuing shouting matches, deputy speakers stepped in to mediate.

The drama will continue on Monday when Paul Tucker, deputy governor of the Bank of England, will testify in regards to his Oct. 29, 2008 conversation (at the apex of the financial catastrophe) with former CEO Diamond.

It could be Diamond's own hand was at the root of his demise. It was his memo of that precise conversation that prompted a Barclays executive to infer that the bank had ordered Barclays to submit lower reports of its borrowing costs.

However, in Tucker's defense, Diamond told the committee on Thursday that he had not believed that Tucker gave an order.

Stay tuned.

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