When Bob Diamond and Barclays took the decision to cut a deal with international banking regulators and admit their role in the interest rate rigging scandal they thought they had made a decision in the long-term interests of the bank’s shareholders.
By ‘going first’ and admitting wrong-doing they received a reduced fine, immunity from corporate prosecution and a chance to ‘clean up’ and put the scandal behind them. In fact Barclays share rose on the news of the deal.
Nearly a week later and things look rather different. The bank is searching for a new chief executive and chairman, its shares have fallen by around ten per cent and its reputation for probity is in tatters.
It looks like one of the biggest corporate blunders in history.
So what next for Barclays and the banking sector in general?
In the short term the answer is more pain and, in the longer term, more regulation.
Tomorrow Mr Diamond will face MPs on the Treasury Select Committee for what is likely to be an uncomfortable hearing.
He will be asked what he knew and when about the Libor fixing which went on under his watch when he was running Barclays Capital.
He will also face questions about a phone conversation he had with the deputy governor of the Bank of England Paul Tucker in late 2008 after which Barclays started manipulating their Libor rate to make the bank appear more financially secure than it was.
It is hard to see how either the bankers or the regulators will come out of the hearing well.
In the coming weeks we will then see more embarrassing deals cut and fines imposed on both British and international banks for Libor fixing.
These are thought include RBS, HSBC – run by the Trade Minister Lord Green at the time and Lloyds.
All three banks now have new management since the time the fixing took place which may lessen the internal pain – but details of what they did may damage the industry in general more than the Barclays scandal.
This will lead to more regulation. The Government has already announced that it intends to look at extending the Bank of England’s powers and bring in new laws to make Libor fixing a criminal offence.
There are also likely to be additional recommendations from the Government’s newly set up Parliamentary Inquiry into banking – or a judge led inquiry if Ed Miliband gets his way.
The danger in all this is that the political and public backlash ends up damaging an industry which is vital to the country’s economic recovery.
Anger at bankers is easy. How you translate that into a sensible framework for the future is much harder.