On the back of news that Barclays bank was punished with a record fine of £290 million by UK authorities for interest rate manipulation, comes the speculation that the crisis, said to involve numerous banks around the world, could help push investors toward South African shores.

On Wednesday night, news emerged that one of the biggest banks in the world – Barclays – was fined a record £290 million for attempting to manipulate the world’s benchmark borrowing rate – the Libor – the London Interbank Offered Rate. This was a huge blow to the bank’s reputation and credibility, and the markets have begun to reflect just how disturbing this all is.

It also raised the obvious question – does Barclays chief executive, Bob Diamond, deserve to keep his job?

It’s now not actually certain how many other global banks face being named and shamed as part of the investigation.

The London Interbank interest rate underpins some $450 trillion worth of loans and financial contracts worldwide, and Patrice Rassou, head of equities at Sanlam Investment Management, said yesterday, that some of that might start heading our way as investors run with their tails between their legs:

There are questions around the integrity of developed-country banks … questions about remuneration. [This] reinforces the safe-haven status of our banks. Investors are running for cover and hiding in SA’s banks. They are trading at a premium to other emerging-market banks. You would usually expect banks from China, Russia and India to be trading at a premium to ours.

South Africa’s big four lenders, Standard Bank, Nedbank, FirstRand, and Absa have been trading to multiyear highs this year.

But things don’t look as positive for Absa, which is majority owned by Barclays, and stunned markets earlier this week by predicting a profit decrease. It cited an increase in mortgage-related bad debts, “sending its shares tumbling and raising fears a sector-wide recovery was losing steam.”

Business Day summed up some of the knock-on effects from the Barclays saga thus far:

Further fuelling negative sentiment towards lenders is JPMorgan Chase’s disclosure that its losses from credit derivatives could amount to more than $9 billion. The US’s biggest bank had pegged the losses at $2 billion last month.

The London-listed shares of Barclays, which owns Absa, plunged as much as 18% yesterday. Over the past 12 months, its stock has dropped 32%. Stocks of its rival, HSBC, have declined 8,2% in the past year.

Bankia, at the centre of the Spanish banking crisis that threatens the European Union’s fourth-largest economy, has seen its stock plunge 76%.

Swiss bank Credit Suisse, which is struggling to raise capital to meet the Basel 3 requirements, has seen its shares decline 46% in 12 months.

World markets reacted positively this morning following the overnight news that Europe’s leaders had hammered out a deal to address the on-going banking crisis in the euro zone. The JSE was up more than one per cent in early morning trade.

Watch this space.

[Source: BusinessDay]