Big banks targeted as rate-fixing probe widens

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An international probe into alleged interest rate fixing that led to $453 million in fines against Barclays Bank is taking aim at four other banks, including Citigroup, UBS, HSBC and Royal Bank of Scotland, British officials said Thursday.

Investors were punishing bank shares amid worries that the banks will also be hit with hefty fines.

British Treasury chief George Osborne said the four banks were being probed for allegedly providing false figures on key interest rates upon which mortgages and consumer loans are priced.

On Wednesday, U.S and British regulators imposed the fines on Barclays for manipulating the so-called LIBOR — the London interbank offered rate — to its advantage from 2005 to 2009.

The probe is part of a multiyear investigation into whether banks manipulated the key rate during the financial crisis to help boost profits and hide their ailing financial condition. The Wall Street Journal, which initially raised questions about the rate in a series of stories in 2008, said the fine against Barclays was the biggest victory yet for regulators in the probe.

Barclays made the deal with regulators in the U.S. and in Britain.

"Banks were clearly acting in concert," said Andrew Tyrie, a British lawmaker, who is also chairman of the influential Treasury Committee in the House of Commons. "I fear it's not going to be the end of the story, that we are going to find that other banks have been involved."

Tyrie said his committee would summon Barclays chief executive Bob Diamond to explain what happened at the bank.

Diamond has decided to waive his 2012 bonus in wake of the fines and is facing calls to step down.

Prime Minister David Cameron, when asked whether Diamond should resign, said he thinks "the whole management team have got some serious questions to answer. Let them answer those questions first."

The massive fines are unlikely to be the end of the pain for Barclays. The cost of lawsuits related to the LIBOR scandal will likely be bigger, said Sandy Chen, banking analyst at Cenkos Securities.

"Since Royal Bank of Scotland, HSBC and Lloyds Banking Group have also been named in lawsuits, we expect they will also face significant fines and damages. We are penciling in multiyear provisions that could run into the billions," Chen said.

The LIBOR is an average rate set by banks each morning that measures how much they're going to charge each other for loans. That rate, in turn, affects rates on many loans for consumers and businesses.

The U.S. Justice Department said Barclays would not face criminal prosecution, subject to certain conditions, but individual employees or officers could be prosecuted.

Diamond waived any bonus for this year, as did finance director Chris Lucas, chief operating officer Jerry del Missier and Rich Ricci, the chief executive of corporate and investment banking. Diamond said the decision reflected "our collective responsibility as leaders."

Martin Taylor, who was CEO of Barclays between 1995 and 1998, said the bank's board will have to make a decision whether Diamond can carry on in his post.

Though Taylor does not believe Diamond ordered anyone to fiddle the rates, and thinks Diamond should stay if he can "help clean out the stables," he told BBC radio that only the board can make that judgment.

The traders involved in the manipulations worked in Barclays Capital, the investment bank which Diamond headed between 2005 and 2009.

Former Barclays chief Taylor said he was confident that Diamond hadn't sanctioned the misbehavior in the unit, but added that the company's culture might have been a factor behind the misdemeanors.

"Bob runs an extraordinarily competitive and aggressive ship, and that is one reason why Barclays Capital has been very successful in the first decade of the century," Taylor said.

"And I think that when people are pushed to go to the limit, you know what traders are like, they sometimes go beyond it. They don't need to have an instruction from headquarters to go beyond it, they think it is what the bank might expect, perhaps."

"Somebody at senior level somewhere will certainly have known. I can't believe that Barclays haven't identified who that is," Taylor added.

Reuters contributed to this report.

CNBC's Kelly Evans reports Barclays has serious questions to answer over an investigation on whether the banking giant manipulated interbank lending rates over several years.

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US trade gap widens; deficit with China hits record

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The U.S. trade deficit widened slightly more than expected in December, and the bilateral trade deficit with China last year soared to a record high $295.5 billion.

The monthly trade gap swelled to $48.8 billion as goods imports climbed to the highest level since July 2008, just before the financial crisis caused world trade to plunge, a report from the Commerce Department showed on Friday.

Analysts surveyed before the report had expected the December trade deficit at $48.0 billion, up from a revised estimate of $47.1 billion in November.

U.S. exports grew slightly in December, with records set for petroleum, services and advance technology goods.

For the year, the U.S. trade gap rose 11.6 percent to $558.0 billion, the highest since 2008.

Exports last year rose 14.5 percent to a record $2.1 trillion, keeping the United States on pace to meet President Barack Obama's goal of doubling exports in five years.

Imports grew 13.8 percent to a record $2.7 trillion, with records set in several categories.

Auto imports rose to the highest since 2007 and petroleum the highest since 2008. The average price for imported oil in 2011 was a record high $99.78 per barrel

The record trade deficit last year with China is certain to reinforce concerns in Congress about Beijing's currency and trade practice ahead of a meeting next week between Obama and the Asian giant's expected next leader, Vice President Xi Jinping.

U.S. exports to China jumped 13.1 percent to $103.9 billion. But that was overwhelmed by a 9.4 percent increase in imports from China, which pushed the tally to a record $399.3 billion.

Last year, the Democratic-controlled Senate passed legislation to pressure China to raise the value of its currency, but that bill hit a dead end in the Republican-controlled House of Representatives.

Many lawmakers believe that China deliberately undervalues its currency to give its companies an unfair price advantage, contributing to the huge bilateral deficit.

The U.S. trade deficits with the European Union and Canada also expanded in 2011.

Copyright 2011 Thomson Reuters.

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As crisis widens, Europe's leaders keep talking

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French President Nicolas Sarkozy and German Chancellor Angela Merkel met over the weekend and told reporters Monday they had worked out yet another plan to contain the widening financial crisis sweeping the continent. But they deflected questions about the plan's details.

By John W. Schoen, Senior Producer

More than a year after European officials began squabbling over solutions — and the continent's worst financial crisis since World War II has begun to engulf the banking system — the talking continues.

On Monday, Dexia, an embattled Franco-Belgian bank, became the first victim of the credit squeeze battering European lenders. European leaders moved to save the bank as the leaders of France and Germany emerged from yet another weekend of "emergency talks" on a coordinated plan to backstop European lenders.

“We are determined to do everything necessary to ensure the recapitalization of Europe’s banks,” Chancellor Angela Merkel said in Berlin after meeting with President Nicolas Sarkozy of France.

But the two leaders provided no details, leaving investors with little confidence that the plan will work.

"Now we have a plan to have a plan for recapitalization," said Steen Jakobsen, chief investment officer at Saxo Bank, a Danish investment bank. "We so many have plans for plans that I'm getting confused."

Though solutions remain murky, the problems facing Europe were brought into sharper focus by Dexia's failure. With no unified backstop in place, France and Belgium stepped in with $120 billion in loan guarantees for Dexia, which was taken over by the Belgian government.

As the crisis spreads, it's unclear how many more banks are at risk of being swamped by losses on holdings of government bonds issued by heavily indebted countries like Greece.

Now, as individual governments are forced to backstop their banks, the debt issued by those countries is being called into question. Moody's warned on Monday that it was reviewing Belgium's credit rating for a possible downgrade.

The risk is that Europe's governments find themselves caught in a vicious cycle. As Europe slides into recession, banks holding government bonds face losses if those bonds default. But without a coordinated plan to backstop failing banks, the burden will fall to individual governments. That cost of bank bailouts would further strain those government's budgets, increasing the risk of default.

"The governments that have problems with sovereign debt are recapitalizing banks that have problems with sovereign debt," said Adrian Schmidt, an investment strategist at Lloyds Bank. "It's getting somewhat circular."

Merkel and Sarkozy said Monday they would finalize the plan to backstop Europe's banks by the end of the month. But they offered no details, including the possible price tag for a unified program to provide more cash to the banking system.

There's widespread agreement that Europe's banks need more capital to weather the ongoing financial crisis. But there's little consensus over just how much they need. The problem is compounded by the steep drop in the price of Europe's bank stocks, which has made it harder for them to sell stock to raise cash.

The hope is that government pledges to backstop failing banks will help calm investors and provide bankers with more sources of private funding. But investors remain leery.

"I do not think being guaranteed by governments is any guarantee these days," said Jakobsen.

The announcement from Sarkozy and Merkel that a plan was near follows multiple failed attempts at a coordinated solution. Those have included a European version of the U.S. Troubled Asset Relief Program launched in 2009 to bail out American banks. Last year, European leaders cobbled together a so-called "financial stability facility," but that fund is now widely seen as too small to cover potential losses.

"We've been talking about Europe and potential solutions for months," said Scott Nations, President of NationsShares. "First it was leveraging the stability facility. And then they were going to do euro TARP. They're not coming to any conclusions or any solutions."

It remains to be seen how the latest plan will resolve the underlying threat of a debt default by Greece and other weaker economies. As the crisis has widened, the European Union's 17 member governments have remained split over a basic question: who should foot the bill?

Europe's leaders are running out of time to resolve that long-simmering debate. Over the weekend, Greek officials wrapped up the latest round of talks on the next $11 billion installment of an aid package needed to stave off a debt default. Without the payment, Athens is expected to run out of cash in the next few weeks. The latest round of proposals may be Greece's last chance to head off the financial collapse that has been looming for over a year.

But for now, the talking continues. On Monday, the EU announced that its next regular summit would be postponed by six days to Oct. 23 to allow time "to finalize our comprehensive strategy on the euro area sovereign debt crisis", according to European Council President Herman Van Rompuy.

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