Serious Fraud Office launches criminal banking probe into alleged Libor rigging

Britain's biggest banks were tonight embroiled in a criminal investigation after the Serious Fraud Office opened an official inquiry into the rate-rigging affair.

At the end of an explosive week of high-profile scalpings and fierce political debate, Serious Fraud Office (SFO) director David Green QC formally set his department's sights on the banking scandal.

The move comes after Barclays was fined £290 million by US and UK regulators for manipulating the Libor, the key lending rate which affects mortgages and loans.

The claims ultimately led to the resignation of Barclays boss Bob Diamond and have become the focal point of a bitter row in Westminster over ethics in the banking sector.

The Treasury welcomed the SFO's decision, which could ultimately lead to criminal prosecutions, and said the department will have "the resources they need for the investigation".

Treasury Chief Secretary Danny Alexander told Sky News: "The Financial Services Authority has carried out a detailed investigation and the Serious Fraud Office has the opportunity to take forward the investigation... Of course, as a Government we will make sure they have all the resources they need to carry this investigation out to the full."

Barclays shares continued to suffer, falling 2% on the FTSE 100 Index, despite some brokers urging investors to buy into the stock's relatively cheap price tag.

The SFO revealed earlier this week that it had been working closely with the Financial Services Authority (FSA) during its investigation and was weighing up whether it could proceed with criminal prosecutions.

The Government department, which is responsible for investigating and prosecuting serious and complex fraud, will cover the entire banking sector and warned assessing the evidence would take time.

As the SFO unveiled its investigation, Labour leader Ed Miliband continued to push for an independent inquiry into the banking scandal despite MPs rejecting the demands.

The Labour leader said that while the party would co-operate with a parliamentary investigation, its remit was too "narrow" and a judge-led probe was still needed.

Mr Miliband also defended the conduct of Ed Balls after the shadow chancellor engaged in a bitter war of words with his opposite number George Osborne in the Commons.

It followed an interview with the Spectator where Mr Osborne said former prime minister Gordon Brown's inner circle had "questions to answer" over apparent pressure on Barclays to post lower Libor rates during the credit crunch.

Bank of England deputy governor Paul Tucker and Barclays chairman Marcus Agius, who announced his intention to resign after a replacement for Mr Diamond is found, will give evidence on the rate-rigging scandal to the Treasury Select Committee next week.

Mr Tucker was dragged into the affair by Mr Diamond, who revealed a record of a conversation they had in October 2008 in which the deputy governor relayed concerns in Whitehall about Barclays' high Libor rates.

The American banker said Mr Tucker was trying to warn him that "there are ministers in Whitehall who are hearing that Barclays is always high, that could lead to the impression that you are not funding yourself".

Barclays was dealt another blow yesterday as agencies Moody's and Standard & Poor's downgraded their outlook for the bank's credit rating in the wake of Mr Diamond's departure.

The agencies said the departure of Mr Diamond, as well as Mr Agius and chief operating officer Jerry del Missier, could lead to the break-up of its powerhouse investment arm.

Mr Diamond admitted feeling "physically ill" when he discovered traders had fiddled the key rate but denied he was "personally culpable" for their actions.

He blamed a "series of unfortunate events" for his shock departure as he fended off calls to give up his multimillion-pound bonuses.

Ian Gordon, analyst at Investec, said: "Once the Treasury Select Committee hearings scheduled for Monday and Tuesday are safely out of the way, we sincerely hope that the debate around the Barclays investment opportunity can rightly return to the numbers."

The Barclays' board will go into the weekend deliberating over Mr Diamond's exit package as pressure mounts on the former chief executive to hand back millions of pounds worth of unvested shares.

Mr Diamond is estimated to have received £120 million since joining Barclays' board in 2005. He took home nearly £18 million in pay rewards last year.

But when faced with questions over his severance deal or clawback of his bonuses, he said: "That is a question for the board."

PA