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Big banks targeted as rate-fixing probe widens

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.