The Big Bank Fix Panorama

Tonight, the scandal at the top of Britain's banking establishment

caught on tape.

Interest rates were rigged.

There are calls for an inquiry into whether Parliament was misled.

That is shocking. We need an immediate inquiry

to look into exactly who knew what, when.

Last week, two Barclays bankers walked free from court.

-How are you feeling?

-Delighted.

But what about the bankers accused of conspiring with them

who've been jailed?

Barclays, they just threw us to the wolves.

They get off with their fine while we rot in jail.

We ask, should they have been prosecuted?

'You've got the Bank of England involved in the whole thing.'

It's my opinion that if this was available last year,

the result might have been very different.

-Stylianos. How are you feeling?

-Delighted.

Last week, two former Barclays traders,

Ryan Reich and Stylianos Contogoulas, walked free from court,

cleared of conspiracy to defraud by rigging interest rates.

It was the end of a long battle to clear their names.

I am very happy, obviously, and this has been

five and a half years of my life,

and I just want to go back to my family now. That's it.

-Thank you very much.

-Thank you very much.

-Thank you, thank you.

Sometimes I look at it and I think I'm in a bad movie. It's like...

It's just something completely...

If you'd told me this ten years ago, I would say, "You're mad."

It's destroyed big parts of my life, like my career, totally gone.

I'm very sad that people are in jail when they shouldn't be,

that's my opinion.

The acquittals raised serious questions about the convictions

of four other Barclays bankers who Stylianos Contogoulas

was accused of conspiring with.

They were convicted and jailed last June.

Four ex-employees of Barclay Bank

have been sentenced to jail for rigging Libor,

the benchmark for how much it costs banks to borrow from each other.

'I've been investigating this story for the last 18 months.'

I just can't believe it, at this age, my son goes to jail?

Jay Merchant, who's 45,

he was sentenced to six and a half years.

Peter Johnson, who's 61, was sentenced to four years.

Jonathan, do you have anything to say?

Jonathan Mathew, 35, was sentenced to four years.

How are you feeling about it?

-Not great.

-Not great.

And Alex Pabon, an American who worked for Barclays.

He was sentenced to nearly three years.

I don't know what you want, you want your Cheerios?

-Oh, God!

-Oh, yeah.

-OK.

Just two hours before he was jailed,

he and his wife Julie agreed to speak to me.

I never thought that what we were doing was wrong.

We've been saying the same story for ten years.

They didn't do anything wrong.

I don't know what will happen from here, you know?

It's just very scary and I feel like it could happen to anyone

to be honest, you know.

Alex Pabon and the other Barclays bankers were all prosecuted

over rigging an interest rate called Libor.

The London Interbank Offered Rate is meant to track

the cost of borrowing money.

It has a big influence on your mortgage and other loans.

Libor is now more tightly policed,

but until recently it used to be set by taking an average each day

of what the big banks thought they'd have to pay to borrow money.

Libors, if you like, are interest rates.

That is THE major benchmark for global interest rates.

350 trillion or so of financial products based on Libor,

it is the major global benchmark for interest rates.

The very same banks involved in setting Libor

had big money staked on whether Libor went up or down.

If a trader could influence the rate, the bank could make money.

It's been called trader manipulation.

The convicted Barclays traders say that what they were doing

was encouraged by their bosses,

a normal commercial practice dating back to the '90s.

In the City, it was common knowledge for years that traders

would try to secure tiny shifts in Libor rates every day.

Pippa Malmgrem is a leading US financial expert,

and was an economic advisor to President Bush.

When you work on a trading floor,

your whole job is to buy

something for one price and you sell it for something a little higher.

This is the way every trader on a trading floor thinks.

So when they're asked to establish a rate,

they're thinking in terms of the two sides,

and so this is their attempt to create a little space

because you always want to make money on the deal.

The way I saw it was, it was perfectly OK to do it.

It was almost like what we call a free option,

you might as well do it. You can do it, it's perfectly normal

and proper, you can do it.

If it works, great, if not, that's it.

In August 2007, the world changed.

Global financial markets went into meltdown.

British banking was on the brink.

Tonight at Ten:

Northern Rock appeals for calm and urges its customers not to panic.

Banks became scared of lending to each other,

worried they wouldn't get their money back.

The market seized up. The economy was heading towards a crisis.

Not since the beginning of the First World War

has our banking system been so close to collapse.

Whenever you have a major financial crisis, you always have what

might be called the recrimination phase of the economic cycle

which is when everybody goes,

"Wait, how the heck did this happen and who is responsible for it?"

The public and politicians on both sides of the Atlantic

wanted to know what had gone on, and who was to blame.

Banks had to be called to account.

Financial regulators targeted

the so-called trader manipulation of Libor.

Whee!

Tom Hayes was the very first trader to be jailed for it,

found guilty of conspiracy to defraud.

He was working for the Swiss bank UBS.

Tom Hayes is now in prison.

-I feel angry about it.

-Why?

Because Daddy shouldn't be in his new place, should he?

We call it Daddy's new place.

That new place is Lowdham Grange Prison in Nottinghamshire

where Tom Hayes is serving 11 years.

The sentence is just inexplicable.

What does it compare with? What are you talking about?

I think you can get less time for killing somebody.

Sarah, a lawyer, is fighting to get her husband released.

All I really want is for the truth to come out,

because if the truth came out, I think he would come out of prison,

but the truth has never come out about this.

Tom Hayes had a reputation as a trading superstar.

He earned millions.

From his base in Tokyo, he had a network of London brokers

who he tried to use to make small changes to Libor.

One of them was Noel Cryan.

He was the biggest trader at the time,

he had power over not only the brokers

but other traders were scared of him as well.

He would always take advantage of that.

Tom Hayes started asking Noel to try to influence Libor.

The requests Tom Hayes was making were tiny,

but because his bank had billions staked on Libor,

even a minuscule move could make big money.

Everyone knew there is this very important benchmark out there,

that the banks were in charge of setting and lots of traders,

making their living was based on playing with that

and no-one made any effort to stop that or impose order on it.

Tom Hayes said he HAD tried to influence Libor,

like the Barclays traders who later followed him into the dock.

But they all said it was a day-to-day banking practice,

something their bosses expected them to do.

Tom Hayes says he should never have been prosecuted

by the Serious Fraud Office, or SFO.

There's e-mails, there are phone recordings,

there are chat transcripts,

that show that people up and down the organisational ladders

knew about, condoned, in some cases participated in what was going on.

Don't forget, Tom Hayes never made any secret of it.

He was completely open. He never acted once like a man

who thought he was doing anything wrong or illegal.

Noel Cryan and five other brokers were later charged with

conspiring with Tom Hayes.

They told the court they hadn't done what he'd asked them to do.

They were all acquitted.

We've been scapegoated in the whole thing.

They've gone to the bottom of the food chain, the brokers, six brokers

answering the Libor question.

Really? If there's things to be answered,

WE shouldn't be answering the questions.

The SFO need to ask themselves, should they have wasted

that much time and money bringing this case

against six money brokers? I don't think so.

UBS, Tom Hayes's employer,

was fined 1.5 billion for allowing its traders to attempt to rig Libor.

UBS told us, "Criminal and regulatory investigations..."

But UBS wasn't the only bank punished for manipulating Libor.

Barclays Bank was fined £290 million.

A week later, its boss, Bob Diamond, was forced to resign.

The bank's Chief Executive, Bob Diamond,

has surprised the City by quitting with immediate effect.

When MPs demanded to know what had been going on,

Bob Diamond told them a handful of traders

down the ranks deserved to be punished.

Do you think a criminal prosecution of a banker...

He was asked whether those bankers should be locked up.

It's reprehensible behaviour,

and if you're asking me should those actions be dealt with, absolutely.

Thank you very much indeed.

But throwing the book at a handful of bankers is not where this story ends.

Hundreds of miles from the City in Cumbria,

a family of caravan park owners were about to discover evidence of

what looked like a cover-up at the top of the banking establishment.

In 2005, Paul Holgate and his father Martin

wanted to borrow £3.5 million to expand their business.

We were recommended to move to Barclays.

It was absolutely fine, it was very good long-term prospects.

Barclays lent the money on condition the Holgates bought

a financial product to protect them against rising interest rates.

What Barclays didn't tell them was that if interest rates went down,

they'd end up losing money. Lots of money.

That's where the problems arose.

Because the liabilities they put on us were incredible.

Interest rates plummeted and in 2012, the business went under.

I was thrown off the park that day,

when the administrators were sprung upon us.

I had some clothing in an overnight bag,

and for the next 14 months I had to make do with the clothes in that bag

because the administrators wouldn't even let me

obtain my own clothes.

After Barclays boss Bob Diamond resigned over Libor,

the Holgates began investigating.

If they could prove that senior people inside Barclays

knew about Libor rigging, they might get compensation.

During their legal case against the bank,

they discovered thousands of confidential documents

from inside Barclays.

We've been fighting the bank for seven to eight years.

You have to have...great tenacity

to be able to carry this through.

Most people can't do it.

The documents revealed that senior managers within the bank

had instructed staff to rig Libor.

This wasn't about the tiny shifts of Libor made by the traders.

This was massive rigging, ordered from the top of the bank.

As the banks started running out of cash during the financial crisis,

most of them started doing something called low balling.

Deliberately submitting artificially low Libor rates

so they'd look in better shape than they really were.

If I asked to borrow £1,000 from you,

and you'd heard my finances were in a mess,

you might want to charge me more in interest

to cover the risk that you don't get your money back.

But, if I admitted I was paying higher interest rates,

people might think I was in trouble,

so I might lie and pretend I was paying no more than anyone else.

That's what many banks did during the financial crisis.

The Bank of England had warning signs about this certainly in 2007.

It's not just like little whispers they were hearing.

There were unequivocal signs

that there was something very wrong with this rate.

In October 2008, the Government launched emergency measures

to get stricken banks lending again.

It's been a tumultuous day,

it started with the announcement of a giant rescue package

for the British banking sector.

The Government pumped £37 billion of capital into the troubled banks.

It was part of a huge rescue plan.

If it worked, Libor would fall.

But it stayed frozen.

The problem for the Bank of England was even with a huge bailout,

the banks knew they were all in trouble.

It still wasn't getting any cheaper for them to borrow money from

each other, and Barclays kept their Libor rate high to reflect that.

The Bank of England wasn't happy.

On 29th October, 2008, its then executive director Paul Tucker

phoned up the Barclays boss, Bob Diamond.

A conversation was had.

That conversation was interpreted by Barclays,

by senior people within Barclays,

as an instruction to lower their Libors and they acted on that.

This leads to a flurry of phone calls and e-mails between

senior people, traders, Libor submitters at Barclays.

Bob Diamond has said he was misinterpreted,

but an instruction to lower Libors

was passed down to the bank's submitters.

One of those submitters was Peter Johnson.

He pleaded guilty to manipulating Libor

and is now serving four years in prison.

During the Holgates' investigation,

they found the transcript of a phone call

between Peter Johnson and his boss, Mark Dearlove.

It also happened on 29th October, 2008.

I've got hold of the actual recording,

crucial evidence that Barclays was setting false Libor rates

on instructions from above.

It's never been broadcast before.

Mark Dearlove didn't respond to our questions.

Chris Philp is a member of the House of Commons Treasury Select Committee.

We played him the recording.

-What do you think?

-If what Dearlove is saying is true, that is shocking.

This tape suggests that in fact the Bank of England knew about it

and indeed were encouraging or even instructing it.

So we need an immediate inquiry to find out exactly what is going on,

given what we've just heard on this tape.

The banking system was on life support

and the Bank of England wanted Libor down.

If it dropped, it would look like things were on the mend.

Banks were so unwilling to lend to each other...

But when Mervyn King, the then Governor of the Bank of England,

was called to answer questions before Parliament in 2012,

he said there was no instruction to doctor the Libor rate.

This is like the temperature, when a patient is sick,

you want to bring the temperature of the patient down.

But there's a world of difference between trying to think of

what measures you could adopt to bring the temperature

of the patient down and actually tampering with the thermometer.

That was nowhere near anyone's thoughts at the time.

But tampering with that thermometer, Libor,

is exactly what the Bank of England had ordered.

We were not aware...

Mervyn King's second in command at the Bank of England was Paul Tucker.

Despite making that call to Barclays boss, Bob Diamond, back in 2008,

he told MPs he'd only just found out about low balling.

In your recollection, when was the first time that Libor was raised

as an issue in relation to low balling?

-To...?

-Low balling.

-Erm...

The...

I mean, I wasn't aware of allegations of low balling

until the last few weeks.

Ditto Bob Diamond.

For the third time, what month did you discover

-the low balling was going on? Just give me a date.

-This month.

'It sounds to me like those people giving evidence,

'particularly Bob Diamond and Paul Tucker, were misleading Parliament.

'That is contempt of Parliament.'

It's a very serious matter and I think we need to urgently

summon those individuals back before Parliament to explain

why it is they appear to have misled MPs. It's extremely serious.

Bob Diamond told Panorama, "I never misled Parliament.

"And I stand by everything I have said previously."

Mervyn King says that his evidence was clear and he stands by it.

And that there is "a world of difference

"between dysfunctional markets and criminal behaviour".

Paul Tucker didn't respond to our questions.

But Panorama has discovered evidence that the Bank of England

was involved in Libor rigging even earlier.

We found a confidential US Department of Justice document

that shows Paul Tucker began pressuring Barclays

to lower its Libor rates from September 1st, 2007.

You've now got two separate bits of evidence,

one dating from October 2008,

one dating from September 2007, over a year before,

where there's clear evidence, audio evidence and written evidence,

that the Bank of England were pressuring Barclays to lower Libor.

It suggests that it was part of a more systematic

and ongoing attempt by the Bank of England

to put pressure on Barclays.

But the trials of the Barclays bankers didn't get to hear this,

and much of the other evidence of low balling,

because the Serious Fraud Office said their Libor conspiracy

had come to an end on 1st September, 2007.

That's the thing, in these trials that we went through,

they separated everything.

Separated trading requests and low balling.

So anything that has to do with this did not go in.

So you're asking me, do I think if all this was in,

would it make a difference? Erm...

Probably, is the answer.

-SHE SNIFFLES

-OK.

Alex Pabon was one of the Barclays bankers jailed last summer.

He was released from prison three weeks ago and immediately

deported to his home in Texas.

He still thinks he didn't get a fair trial.

What effect do you think it had on your case that they didn't bring in

what we know about your bosses and the Bank of England doing that?

The failure to

not put in front of the jury specific evidence

really hamstrung the defence on how we could respond to

what the prosecution was saying.

What's the scale of the difference between what you might have achieved

by making a Libor request

and what your bosses and the Bank of England might have achieved?

We were asking for an eighth of a basis point

and they were asking for 50 basis points, so about 400 times more.

The Bank of England says Libor was not regulated in the UK

or elsewhere during the period in question.

But it's been assisting the criminal investigations

into Libor manipulation by employees at commercial banks.

The Serious Fraud Office says it's still investigating low balling.

It says it follows the evidence

and aims to charge the most senior people,

where there is a realistic prospect of conviction.

The prosecution period, which ended on 1st September, 2007,

was led by the evidence and material dated after this point

was provided to the defence.

The 2008 recording was disclosed to the defence

but it wasn't admitted into court.

Barclays, they just threw us to the wolves. They were happy, I think.

Because they get off with their fine

and then they get some low level guys that go to jail

and they just continue to work and make millions of dollars a year,

while we sit there and rot in jail.

But there is one more twist in the Libor tale.

Back in Cumbria, the campsite sleuths

came across another extraordinary piece of evidence.

At the height of the financial crisis,

Barclays sensed an opportunity.

Having been instructed by the Bank of England to lower its Libor rates,

it hatched a top-secret plan,

involving something called the Ricardo Master Fund.

The goal of Ricardo Master Fund, like all such funds,

was to make money for the bank.

They were investing in financial instruments whose performance

was based on the movement of interest rates.

Barclays put 100 million of its own money into the secret fund.

If you look at this, Andy, this is what we've been shown.

It is a transcript of a telephone conversation at Barclays.

More evidence that the Bank of England's Paul Tucker

had told Barclays to get its Libors down.

"I've been told to get Libor rates down.

"It's political from very, very high,

"so it's Tucker calling the tune."

Because Barclays knew that interest rates would fall,

the Ricardo Master Fund made 100 million for the bank

in a matter of months.

And who was in charge of the Barclays company that ran the fund?

Bob Diamond.

The man who told MPs he knew nothing about low balling until 2012.

For the third time,

what month did you discover that low balling was going on?

-Just give me a date.

-This month.

As the Holgates' caravan business was being destroyed

by falling interest rates, Barclays was making a killing.

Barclays didn't answer our questions about the Ricardo Master Fund

but told us it remains committed to fundamental change

in its culture and operations.

The bank reached a financial settlement with the Holgates

but insisted that the amount of compensation they received

be kept confidential.

You just would not think in a country that has the reputation,

prides itself on being a very, very upstanding,

honest nation, allows these things not only to happen,

but they aren't sorted out, just ignored and swept away.

I think that's the biggest shock, not just what's gone on,

but the way it's been dealt with afterwards.

Tom Hayes, the first banker to be jailed, has lost an appeal

against conviction and is now in his second year behind bars.

His son Joshua will be eight by the time his father's due to be released.

It is hard because, you know, when we go to the field,

I have to kick the football with him

because his dad's not around to do it.

Tom Hayes sends his wife and son video messages recorded from prison.

Hello again, Josh. Hi, Mummy. I hope you're both OK.

Love you loads, both. See you soon, bye.

No senior banker in the UK has ever been prosecuted for fixing Libor.

I think that they don't want to go after the guys at the top,

so they come for the low guys

and then just leave the top guys to float away.

To the bankers who've been prosecuted,

there's a huge double standard in the Libor blame game.

It's now clear the scandal of the big bank fix goes far higher than

the banking establishment ever wanted us to know.