This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week, I plan to highlight the now former CEO of Barclays (NYSE: BCS ) , Bob Diamond, although I could easily include about a dozen other banks in here.
The dunce cap
The financial markets are always looking for a scapegoat when things go wrong. Well, now not only do financial markets have that scapegoat, but John and Jane Q. Public have their very own source of blame -- LIBOR rate manipulators.
As my Foolish colleague Dan Caplinger explained two weeks ago, the ramifications of a LIBOR scandal are gigantic. LIBOR, or the London Interbank Offered Rate, is the rate at which banks lend to one another. Thomson Reuters takes data submitted daily from 16 U.K.-based banks, including Barclays, Deutsche Bank (NYSE: DB ) , and UBS (NYSE: UBS ) , and averages the middle eight rates to come up with that days' LIBOR rate. LIBOR rates are critical in determining loan rates ranging from mortgages to car and credit loans. According to the British Bankers' Association, roughly $10 trillion worth of loans are based on LIBOR.
The scandal itself involves a handful of banks, including Barclays, that knowingly and willingly manipulated LIBOR for their own interests. Details are still emerging, but it appears that Barclays, during the height of the credit crisis in 2008, artificially reported lower LIBOR rates despite the fact that it was in better financial shape than many of its peers. That interest fixing has landed the company in a world of hurt.
First off, Barclays had $453 million worth of fines levied against the company by U.S. and British regulators for submitting false LIBOR rates between 2005 and 2009. Second, the company could face an untold number of lawsuits. According to the U.K.'s Introducer Today, Barclays could face approximately $7.1 billion in litigation costs, which may go even higher depending on the magnitude of the manipulation. Finally, there are the job costs (although shareholders might view this one as a positive). Both Bob Diamond and the bank's chief operating officer, Jerry del Missier, resigned earlier this month in the wake of the scandal due to mounting criticism.
To the corner, the entire banking sector...
Seriously, let's send most of the entire megabanking group to the corner, facing the wall, dunce cap on, and make them sit there until they realize what they've done. Just when you think to yourself, "No, it couldn't possibly get any worse," another ridiculous scandal sideswipes the market.
Not only has Barclays admitted to interest-rate fixing, but UBS and Deutsche Bank have as well. UBS is currently awaiting word on how severe its potential fines could be, while Deutsche Bank notified British officials in 2011 of the wrongdoing in an effort to "limit damage to its reputation and bottom line," according to German magazine Der Spiegel.
To put it another way, you know things are bad when there's a full 10-minute segment on satirical late-night news show The Daily Show devoted entirely to the LIBOR scandal.
And if you think the scandal ends there, you're sorely mistaken. There are investigations under way regarding LIBOR manipulation on HSBC Holdings, Royal Bank of Scotland, Citigroup (NYSE: C ) , JPMorgan Chase (NYSE: JPM ) , and Credit Suisse, with countless other banks being included in the mix as next in line to be investigated.
I'm not sure if focusing on one financial CEO, or calling it a gaffe, quite sums up just how badly these banks may have stiffed everyone from individual loan holders to corporations to state and local governments. For what it's worth, I truly hope U.S. and British authorities throw the book at these banks once the investigations are complete and we can practically cement in a spot for Bob Diamond as one of my chosen worst CEOs of 2012.
Do you have a CEO whom you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may wind up seeing your nominee in the spotlight.
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