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The Aftermath of the Barclays Scandal

""Barclays"":http://group.barclays.com/home already ""lost three executives"":http://dsnews.comarticles/barclays-loses-two-more-in-backlash-of-libor-scandal-2012-07-03 this week in the wake of the bank's highly-publicized rate-rigging scandal, but its troubles may have only just begun.


Barclays was rocked when it was found that the bank's agents had manipulated the London Interbank Offered Rate (LIBOR) starting as early as 2007. The bank was fined hundreds of millions by British and U.S. authorities. As a result, a number of key figures have stepped down while Barclays prepares to launch a third party-led investigation into its practices.

The news gets worse for the bank, however. In response to the wave of resignations and the pressure faced by Barclays from various agencies, ""Moody's"":http://www.moodys.com/ and ""S&P"":http://www.standardandpoors.com/home/en/us both downgraded the bank's outlook. Moody's explained its decision in a release:

""Specifically, the shareholder and political pressures on Barclays, which resulted in the resignation of the bank's CEO, COO (previously the head of the investment bank) and the stated intention of the Chairman to resign, could lead to broader pressure on the bank to shift its business model away from investment banking and reform perceived failures in its business culture. Although this could have potentially positive implications over the longer term, the uncertainty surrounding such a change in direction is credit negative in the short term,"" said the release.


James Frischling, president and co-founder of ""NewOak Capital"":http://www.newoak.com/, said that the Barclays scandal strengthens arguments for increased banking regulation by the SEC and Britain's FSA. Furthermore, he said that the fallout from the scandal will probably be lasting.

""While it's typical for banks to pay fines when violating financial regulations, the Libor rate touches products from the most complex derivatives to the relatively simple residential mortgages,"" said Frischling. ""With so many instruments and parties being affected by Libor, the ultimate untangling of the issues will most likely require an elaborate dispute resolution and settlement process.""

Financial worries aren't the only issue for Barclays' executives. Chicago-based securities attorney ""Andrew Stoltmann"":http://investmentfraud.pro/andrew-stoltmann/ said they can expect to see criminal charges filed against them.

""The activities these traders knowingly engaged in is well-documented,"" said Stoltmann. ""The conduct harmed millions, so a criminal indictment against Robert Diamond, or at a minimum, the traders directly involved in the conduct, is the only sort of action that will prevent this type of activity from occurring in the future.""

Stoltmann added that although Diamond agreed to pass up his bonus, the act is a ""pathetically woeful punishment for the crimes.""

""Bank executives have long avoided criminal prosecution, and the lack of indictments against senior bank executives is the primary reason we keep reliving _Groundhog Day_ year after year,"" he said.

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.

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