Barclays CEO Diamond Out Amid Rate Scandal

The scandal involving efforts to manipulate a key interest rate continued to tear through the top ranks of Barclays PLC, as its chief executive and chief operating officer resigned a day after its chairman said he would step down.

CEO Robert Diamond resigned Tuesday amid intense political and investor pressure over the British bank's involvement in rigging the benchmark, used to set interest rates on an estimated $800 trillion of borrowings and derivatives. Jerry del Missier, who was named chief operating officer last month, also stepped down.

The bank's chairman Marcus Agius announced Monday that he would resign, but the bank said he will remain while Barclays searches for his replacement—and for a new chief executive. Diamond will leave the bank immediately.

The departures effectively leave one of Europe's largest banks without leadership. That could set the stage for the elevation of Antony Jenkins, Barclays's chief executive of retail and business banking, to CEO, according to two people close to the bank. The bank is also considering external candidates.

Adding another wrinkle to the unfolding scandal, Barclays on Tuesday published a raft of documents in advance of a Parliamentary hearing on the scandal scheduled for Wednesday. Notes takes by Diamond of a call in 2008 between himself and Paul Tucker, a Bank of England financial stability official, suggest that the central bank, under pressure from the U.K. government, may have set off the chain of events that led the bank to lower its submissions for calculating the key rate.

Pressure on Diamond to step down increased after the bank agreed last week to pay $453 million to settle a U.K. and U.S. probe that showed traders had blatantly sought to manipulate the London interbank offered rate, or Libor, to disguise the high cost of the bank's own funding and to pad the profits of certain traders. A person close to Barclays management said Diamond made the decision to leave late Monday night, feeling "it was the right thing for the bank."

The shake-up at Barclays could be mirrored elsewhere in coming months. Barclays was the first to settle in a continuing investigation of a handful of global banks by U.S., U.K. and Asian authorities. Other banks that have disclosed they are being investigated include Citigroup Inc., Deutsche Bank AG, HSBC Holdings PLC, J.P. Morgan Chase & Co. and Royal Bank of Scotland Group PLC.

No individuals have been accused of wrongdoing.

Diamond's departure comes one day before the CEO will face tough questions from the U.K.'s Treasury Select Committee about the rate-fixing efforts.

Key will be whether Diamond or his top managers expressly ordered Barclays traders to submit lower rates to make the bank's funding position look stronger during the financial crisis.

According to the documents released by Barclays on Tuesday, Tucker told Diamond that he had "received calls from a number of senior figures within Whitehall to question why Barclays was always toward the top end of the Libor pricing." After Diamond explained the bank's pricing, he says Tucker reiterated that the calls he was receiving from the government were "senior" and added that "while [ Tucker] was certain that we did not need advice, that it did not always need to be the case that we appeared as high as we have recently."

According to the Barclays documents, Diamond didn't believe he received an instruction from Tucker. However del Missier, then president of Barclays's investment bank, concluded that an instruction had been passed down from the Bank of England not to keep Barclays's rate as high.

Tucker wasn't fingered in any way by the various authorities who investigated Libor rigging. A U.K. government spokesman didn't have an immediate response. The current Conservative-led government took power in 2010; in 2008, the now-opposition Labour Party, was in power.

Diamond, a 60-year-old American, has faced a tumultuous 17 months as the head of the bank. During his stint, Diamond, who previously ran the bank's Barclays Capital unit, attempted to reshape Barclays into an investment-banking powerhouse.

But he came under pressure from investors after the plan fell short amid the economic crisis. He also sparked the ire of politicians and regulators with his brazen style that saw him defend banker pay and fend off a tax and insurance misselling scandal. The latest controversy proved to be the final straw, analysts say.

"Ultimately they've reached the right decision. Diamond was a key drag to sentiment," said Gary Greenwood, an analyst at Shore Capital.

Others expressed dismay at Diamond's departure.

Barclays "has not been well served or rewarded for its cooperation with the regulators," said Ian Gordon, an analyst at Investec Securities in London.

Barclays shares, which plunged as much as 16% after the settlement was announced last week, fell 1.35 pence, or 0.8%, Tuesday to 167.05 pence.

del Missier, the former chief operating officer, took that post just a few weeks ago following several years as co-head of Barclays's investment bank. He earned a reputation for being skilled in complex trading strategies as well as in cultivating clients. A Canadian, del Missier has been at Barclays since 1997, and his elevation to the chief operating officer role was an effort to bolster the bank's global operations during a period of regulatory upheaval.

In a statement Tuesday, Agius said del Missier had "played a pivotal role in many of Barclays's stand-out successes during the last 15 years, including his extraordinary contributions as part of the leadership team that built the investment bank."

The U.K. government announced Monday a series of inquiries into ethical standards in the banking industry and as the U.K. Serious Fraud Office said it was considering criminal prosecutions against those who attempted to rig the rates.

Barclays declined to comment on when a successor to Diamond would be named. Under the terms of his employment agreement, Diamond is entitled to six months' salary after a voluntary resignation. He earned £1.35 million ($2.12 million) in salary last year. He isn't automatically entitled to a bonus for this year, but he could still receive payouts under long-term plans. The bank says it is still negotiating the terms of Diamond's departure.

A spokesman said that Diamond's past bonuses were unlikely to be clawed back, because the attempts at rate manipulations happened more than three years ago and the term for clawbacks on those years' bonuses has expired.

Diamond's departure marks a victory for the U.K's political establishment, which has long complained about the bank's management culture. On Tuesday U.K Chancellor George Osborne hailed the move.

"I think it's the right decision for Barclays. I think it's the right decision for the country because we need Barclays bank to focus on lending to our economy and not distracted by this argument about who should be in charge," Osborne said on BBC radio. "I hope it's a first step to a new culture of responsibility in British banking."

This story first appeared on WSJ.com.