Barclays shares finally give way as LIBOR fixing storm grows but one analyst says BARC's actions actually helped save the financial system

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Category: Barclays Plc

Published on Thursday, 28 June 2012 10:43

Written by Will Peters

Barclays and others probably did rather more to save the financial system from total disaster than the various Central Banks have managed since then.

Barclays plc (LON:BARC) shares have finally given up the ghost and are now 8pct lower on a daily basis on revelations that there was collusion between the money market desk and the swaps desks in the reporting of the daily Libor rate by the investment bank.

Predictably, journalists and politicians have doubled their efforts in attacking the banking sector.

Simon Denham at Capital Spreads has this morning pointed out a few interesting facts to consider on the issue. In a morning note Denham says:



"The fact that Barclays was one of sixteen banks (of whom the BBO took the average of the middle eight Libor quotes) and that the net effect of their machinations was to ‘lower the cost of borrowing’ (fractionally) will be lost in the relief of the politicos that there is some else to shove the spotlight on to.

"It must be remembered that for every swap there is a counterparty (generally another financial institution) and banks do not run enormous exposure on swap books so when journalists talk about 300 trillion swap/lending volumes most of this has an equal and opposite component. i.e 150 trillion long and 150 trillion short as, for banks, every loan must be covered.

"The ‘fines’ from the regulators can be assumed to effectively be much more than the actual amount that Barclays might have benefitted from over the issue (so in the great scheme of things not much over a four/five year period) but to this must be added that by reinforcing the appearance of stability in 2007/08 Barclays and others probably did rather more to save the financial system from total disaster than the various Central Banks have managed since then.

"Of course this probably won’t stop some court in the States award mind boggling sums to the rather precious class actions going on at the moment but the markets seem to be confident that this is a storm that can be weathered as Banking stock is not reacting particularly poorly to the headlines."