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THE AFTERMATH OF THE BARCLAYS SCANDAL Barclays lost three executives last month in the wake of the bank's highly publicized rate-rigging scandal, but its troubles may have only just begun. Barclays was rocked when it was found the bank's agents had manipulated the London Interbank Offered Rate (LIBOR) starting as early as 2007. The bank was fined £290 million ($450 million) by British and U.S. authorities. As a result, a number of key figures have stepped down— including its chairman, CEO, and COO—while Barclays prepares to launch a third-party-led investigation into its practices. The news gets worse for the bank, however. In response to the wave of resignations and the pressure faced by Barclays from various agencies, Moody's and S&P both downgraded the bank's outlook. Moody's explained its decision in a release: "Specifically, the shareholder and political pressures on Barclays, which resulted in the resignation of the bank's CEO, COO (previously the head of the investment bank), and the stated intention of the chairman to resign, could lead to broader pressure on the bank to shift its business model away from investment banking and reform perceived failures in its business culture. Although this could have potentially positive implications over the longer term, the uncertainty surrounding such a change in direction is credit negative in the short term," Moody's said. James Frischling, president and co-founder of NewOak Capital, says the Barclays scandal strengthens arguments for increased banking 12 regulation by the Securities and Exchange Commission and Britain's Financial Services Authority. Furthermore, he says the fallout from the scandal will probably be lasting. "While it's typical for banks to pay fines when violating financial regulations, the Libor rate touches products from the most complex derivatives to the relatively simple residential mortgages," Frischling said. "With so many instruments and parties being affected by Libor, the ultimate untangling of the issues will most likely require an elaborate dispute resolution and settlement process." Financial worries aren't the only issue for Barclays executives. Chicago-based securities attorney Andrew Stoltmann says they can expect to see criminal charges filed against them. "The activities these traders knowingly engaged in is well-documented," Stoltmann said. "The conduct harmed millions, so a criminal indictment against [CEO] Robert Diamond or, at a minimum, the traders directly involved in the conduct is the only sort of action that will prevent this type of activity from occurring in the future." Stoltmann added that although Diamond agreed to pass up his bonus, the act is a "pathetically woeful punishment for the crimes." "Bank executives have long avoided criminal prosecution, and the lack of indictments against senior bank executives is the primary reason we keep reliving Groundhog Day year after year," according to Stoltmann. FORECLOSURE REVIEW DEADLINE EXTENDED, NEARLY 200K REQUESTS SO FAR Federal regulators have extended the deadline to request a free, independent foreclosure review by two months. Nearly 200,000 people have asked to have their case files reviewed, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board announced recently. The new deadline to request an independent foreclosure review was pushed from July 31 to September 30. The reviews are for those who believe they suffered financial harm as a result of servicing errors during a foreclosure processed between 2009 and 2010. The property must have been the borrower's primary residence and serviced by a participating servicer to be eligible. The OCC and Fed first issued consent orders for the reviews on April 13, 2011, against 14 mortgage servicers, and as of the end of May, 193,630 people had requested a review. In addition, independent consultants have examined servicers' portfolios and designated 144,817 files for review. There are 156,826 files currently under review, and 11,939 files have been completed, according to the OCC. If financial harm did occur as a result of faulty foreclosure procedures, relief may be available in the form of lump-sum payments, rescission of a foreclosure, a modification, or corrections on credit reports, deficiency judgments, and records. Efforts by the OCC to reach out to borrowers have included 4.4 million letters sent to those who may be eligible for a review. The agency also required servicers to pay for advertising space announcing the reviews. The IndependentForeclosureReview.com website was visited 600,386 times and 7,948 borrowers submitted requests for reviews online as of May 31. The toll-free number, 1-888-9529105, received 241,048 calls, and 25,752 people requested forms as of the end of May. Examples of servicer actions that could lead to borrower compensation include violations of the Servicemembers Civil Relief Act, modifications that were not approved but should have been, lack of proper notification during the foreclosure process, and errors that did not result in foreclosure but still led to financial injury. The independent foreclosure reviews are separate from the $25 billion servicing settlement reached between federal and state officials and the nation's five largest servicers.

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