Watchdog warned Barclays on hiring Diamond

FSA told bank's chairman of worry over appointment in light of rate-fix inquiry

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The Independent Online

The Financial Services Authority warned Barclays back in 2010 that Bob Diamond could prove "unsuitable" to be made chief executive of the scandal-racked bank, correspondence released yesterday revealed.

The correspondence, published by the Treasury Select Committee, showed that Hector Sants, the FSA's then chief executive, highlighted the investigation into Libor interest rate fixing as a potential problem with Mr Diamond's hiring in conversations with Barclays' chairman, Marcus Agius, about the controversial appointment.

He raised a series of concerns about Mr Diamond and warned Barclays that while the watchdog did not want to prejudge its investigation into rate fixing, it "could" change its mind about Mr Diamond based on the results.

In testimony to the committee, Mr Agius, who oversaw the appointment in his role as chairman of the bank, said: "These matters … were not raised by the FSA at that time as casting doubt on his suitability as chief executive officer."

Mr Sants, in correspondence with the committee, argued that this statement was "not correct" based on the discussions held between Mr Agius and senior figures at the regulator.

Minutes of some of those discussions, which also covered Mr Diamond's at times fractious relationship with the FSA and Barclays' aggressive culture, were published alongside the correspondence.

Mr Sants also said: "I made clear that our concerns about the culture of Barclays were not some generic observations but specific to Barclays and asked that they be communicated to Mr Diamond by Mr Agius."

In a letter to Mr Sants, Andrew Tyrie, chairman of the committee, said: "I note that this is at variance with the impression we received from Mr Agius. A related point is that Barclays appeared to have regarded the matters you raised as 'issues' rather than 'concerns'."

Mr Agius resigned in the wake of the furore created by the publication of details of the attempts by Barclays traders to fix Libor rates, which led the bank to accept fines of £290m from watchdogs on both sides of the Atlantic.

Mr Diamond followed only after pressure from the FSA and the Bank of England, as did his deputy Jerry del Missier. The bank now faces a rash of civil lawsuits, although none of the reports into the affair have yet established that the traders succeeded in altering the rate, based on what banks pay to borrow from other banks. Libor is used as a pricing benchmark for a huge array of financial products, including some mortgages.

MPs have also accused Mr Diamond of misleading them, an accusation he has hotly denied. In yesterday's published material it emerged that Mr Agius said: "Whilst BD [Mr Diamond] is very competitive... he suspects he will now see him mature and relax given he has now achieved his goal of becoming CEO".

Sources close to Mr Agius pointed out that while the FSA had the power to formally object to Mr Diamond's appointment, it didn't actually do this. It only stated that it could in future change its view.

Mr Agius is being replaced as chairman by the City grandee Sir David Walker. Antony Jenkins, the former head of retail at Barclays who has become chief executive, has pledged to reform its culture.