Since the start of this year the South African Banking sector has been a driver of returns within the All Share Index. While most of the banks have delivered in excess of 15% year to date, there is a clear outlier in the shape of ABSA Group LTD. The reason for this clear underperformance lies in part with a large increase in bad mortgages and also with the group’s parent company Barclays.
Barclays has been caught up in a scandall surrounding the manipulation of the London Interbank Offered Rate (LIBOR). This rate is charged between banks when they lend to, or borrow from, one another. The rate is not only an integral part of the functioning of the global financial system as a benchmark for the pricing of derivative products but also indirectly affects loans and mortgages for households and businesses, and many other contracts.
By artificially lowering or increasing this rate to accommodate Barclays’ traders and to protect the public perception of the financial strength of the bank during the 2008 financial crisis, Barclays has not helped the current crisis of confidence the global banking sector faces.
On the 27th of June 2012 American and British agencies imposed fines totalling $453m (R3,8 billion) on Barclays for submitting false data used in setting the London Interbank Offer Rate between 2005 and 2009.
While Barclays is the first to be openly prosecuted for this “rate tampering” there are more than a dozen other banks being investigated in a long-running global probe by authorities in North America, Europe and Japan. Some of the banks under investigation include Citigroup, HSBC, UBS, Royal Bank of Scotland. Analysts and bankers expect more big fines to come.
