As news continues to unfold regarding the scale and depth of the LIBOR manipulation scandal, politicians are starting to hunt for scalps. The now-former CEO of British bank Barclays (NYSE:BCS) has chosen to cooperate, as Bob Diamond has resigned his position. It remains to see just how far this scandal will reach, and whether or not Diamond will be the only major CEO to lose his job over bad behavior that is increasingly looking like an industry phenomenon.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers

Barclays - First to Fess up, First to Pay
Given the allegations that Barclays discussed and coordinated artificially low estimates of its borrowing costs with other banks, it seems highly improbable that it will be the only bank found to have committed wrong-doing. Nevertheless, Barclays is the first to publicly acknowledge its role and attempt to make amends.

Barclays has already reached a settlement with the United Kingdom's financial services authority and the United States' Commodity Futures Trading Commission and Department of Justice. For its role in manipulating LIBOR and EURIBOR from late 2007 through mid-2009, Barclays has agreed to pay $453 million, but additional civil penalties could ultimately come into play given the enormous influence of LIBOR in setting borrowing and lending costs throughout economies in Europe and North America.

But this does not end with fines and confessions. Politicians and the constituents they represent have clearly grown tired of bankers behaving badly, and they are now demanding more. As a result of its acknowledged role, the Chairman of Barclays, Marcus Agius, has resigned, as has CEO Bob Diamond and COO Jerry del Missier.

SEE: An Introduction To LIBOR

Did Diamond Need to go?
The loss of Diamond will hurt Barclays. Since becoming the CEO in 2011, Diamond has been credited with steering it through the difficult ongoing mess in Europe, as well as rebuilding the bank in the wake of the credit crisis of 2007 - 2009.

At this point, it is not completely clear what role Diamond played in the manipulation. While Diamond was not in charge of the bank at that time, he was in charge of Barclays' investment bank and it was here where much of the bid-rigging took place. It is almost certain that there will be further inquiries along the lines of "what did you know ... and when did you know it?" and public hearings in the U.K. look like a near-certainty.

These hearings ought to make for good watching. The nature of the LIBOR system is such that no one bank could hope to manipulate rates. What's more, almost every bank had the same incentive to make its balance sheet look better during that period.

That means that a host of banks, including Royal Bank of Scotland (NYSE:RBS), HSBC (NYSE:HBC), UBS (NYSE:UBS), Deutsche Bank (NYSE:DB), Lloyds (NYSE:LYG), Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Credit Suisse (NYSE:CS) are going to come under scrutiny and it seems like a certainty that at least one of these was involved alongside Barclays.

But it may get even better than that. Apparently authorities, including the Bank of England (BoE), were aware of the manipulation while it was going on. There is certainly room to speculate as to why the BoE may have been willing to go along; propping up bank balance sheets would have served the BoE's interests at the time, and that was certainly not a good time for another scandal. With Diamond now no longer employed by a bank, he just may be willing to pull the curtain back not only on how widespread the behavior was, but how many people knew about it.

SEE: Banks Think It's Better To Take And Receive

The Bottom Line
Regulators have already praised Barclays' cooperation in the investigation of the LIBOR manipulation, and this may be a case of where the first to confess faces marginally less severe consequences. It will be especially interesting to see if other CEOs are called to resign in the wake of this scandal. The loss of Diamond's leadership at Barclays is unfortunate, but there are several executives in the industry who should be able to step into the role and lead the bank effectively. As such, and given Barclays' current valuation, the further risks to the stock don't seem that large.

Looking more broadly, this is just another scandal for an industry that just cannot seem to get its nose clean. There have been similar scandals before in markets like government bonds and the participants survived; the knowledge of regulators in this case may well serve to limit the financial sanctions that are ultimately levied. Nevertheless, it is increasingly clear that there is no such thing as a "safe" stock in a global banking industry that very nearly seems to require excessive risk-taking and/or ethical shortcuts to stay competitive.

At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Economics

    Long-Term Investing Impact of the Paris Attacks

    We share some insights on how the recent terrorist attacks in Paris could impact the economy and markets going forward.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Trading Strategies

    How to Trade In a Flat Market

    Reduce position size by 50% to 75% in a flat market.
  5. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  6. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  7. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  8. Markets

    Will Paris Attacks Undo the European Union Dream?

    Last Friday's attacks in Paris are transforming the migrant crisis into an EU security threat, which could undermine the European Union dream.
  9. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  10. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  1. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  2. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center