(Reuters) – Wall Street fell for a fourth day on Tuesday as more pessimism from companies compounded worries that the sluggish global economy is taking its toll on profit growth.

The Dow Jones industrial average .DJI slid 83.17 points, or 0.65 percent, to end unofficially at 12,653.12. The Standard & Poor’s 500 Index .SPX fell 10.99 points, or 0.81 percent, to finish unofficially at 1,341.47. The Nasdaq Composite Index .IXIC lost 29.44 points, or 1.00 percent, to close unofficially at 2,902.33. (Reporting by Ryan Vlastelica; Editing by Jan Paschal)

(Reuters) – A rival oligarch has accused billionaire Oleg Deripaska of “telling lies on a grand scale” to sidestep a 2001 contract over a stake in RUSAL, the world’s top aluminum producer, a London court heard at the start of a multi-billion-dollar legal battle.

The case – a High Court showdown over a 13.2 percent stake in the now-listed RUSAL (0486.HK) – offers a rare insider’s view of the chaotic and often violent consolidation of Russia’s aluminum sector after the collapse of the Soviet Union.

It is also likely to be one of the largest ever commercial cases to be fought in a UK court, with dozens of lawyers, more than 70 witnesses between both sides and already thousands of pages of evidence – hundreds of lever arch files filled makeshift bookshelves around the packed court room on Monday.

Businessman Michael Cherney accuses Deripaska – RUSAL’s chief executive, its largest shareholder and one of Russia’s richest men – of “re-writing history” to erase their partnership, according to court documents filed by his lawyers.

Cherney, who describes his extensive business and connections in evidence, alleges he and Deripaska were allies, after he met the young Deripaska at a dinner in 1993, spotted his acumen and later entrusted him with business interests.

“(Deripaska) realized a partnership with Mr. Cherney would propel him into a different league altogether,” lawyer Mark Howard, acting for Cherney, told the court on Monday.

Cherney, who argues he made “significant financial contributions” and helped Deripaska with his connections, alleges the aluminum billionaire owes him a stake equivalent to 13.2 percent of RUSAL (0486.HK).

Cherney says the two signed an agreement and made a verbal deal when they met at a London hotel in 2001.

Deripaska denies a partnership with Cherney. He says their relationship was, Howard told the court on Monday, an “old fashioned protection racket”, despite videos and photos placing him at weddings and parties alongside Cherney and associates.

“In order to avoid these (2001) obligations, Mr. Deripaska has constructed…a bogus defense,” Cherney’s legal team said in written opening statements. “That house of cards will, it is submitted, collapse at trial.”

The aluminum tycoon does not dispute making a $250 million payment to Cherney at the Lanesborough Hotel in London 11 years ago. But he says he was paying Cherney off to end a complex protection arrangement – known in Russian as “krysha”, or roof – which also included Anton Malevsky, who has been named in court papers as the head of a criminal network.

Deripaska says the papers signed were a sham agreement.

ORGANISED CRIME

In documents filed with the court by Deripaska’s legal team, the aluminum tycoon accuses Cherney of having links to organized crime and having extracted money from Deripaska under the “krysha” agreement.

“If granted, the relief that (Cherney) seeks would be reward for his criminal conduct and for his attempt to extort further money from (Deripaska) through these proceedings,” the documents filed by Deripaska’s team said.

Cherney denies links to organized crime and says he has never been convicted of a criminal offence. Allegations of criminal links, his team argues, were commonly made against businessmen and politicians in the Russia of the early 1990s.

Neither Deripaska nor Cherney were present on Monday, and neither will give evidence until September, when the case will resume after this week’s opening statements from both sides.

Cherney will answer questions in this months-long case via a video-link from his home in Israel, because of an outstanding arrest warrant relating to a money-laundering investigation in Spain, where he is wanted for questioning. Deripaska has been questioned as part of the same investigation.

Cherney first filed his claim against Deripaska in 2006.

(Editing by Mark Heinrich)

(Reuters) – A U.S. Senate panel investigating breakdowns in money laundering prevention at British bank HSBC Holdings Plc will detail the findings of its inquiry at a hearing on July 17.

The U.S. Senate Permanent Subcommittee on Investigations said in a scheduling announcement on Monday that a hearing will focus on how high-risk bank clients gained access to the U.S. banking system.

The panel has been investigating HSBC for months as part of an effort by the Senate panel to probe shadowy money flows. The title of the hearing is “Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History.”

In an emailed statement, HSBC spokesman Robert Sherman said the bank will be discussing a number of compliance issues with the subcommittee, in particular how it resolved issues.

“The Board and leadership of HSBC are fully committed to implementing the highest standards and have already made significant changes to our organization’s structure to bring this about,” Sherman said.

Reuters originally reported in January that the British bank was under Senate investigation. Reuters subsequently reported in May that the bank has been the subject of an investigation by two U.S. Attorney offices.

HSBC also is under investigation by the U.S. Securities and Exchange Commission and the Justice Department. Those probes also are examining whether the HSBC was vulnerable to illicit funds moving through the bank.

HSBC is one of the world’s largest banks with operations in more than 80 countries and territories. In 2003 and 2010, U.S. bank regulators ordered the bank to improve its anti-money laundering systems and personnel, according to enforcement actions by the Federal Reserve Bank of New York and the Office of the Comptroller of the Currency, a Treasury Department unit.

Documents reviewed by Reuters that are part of two U.S. Attorney’s office probes allege that from 2005, the bank violated anti-money laundering laws by not reviewing billions of dollars in transactions for links to drug trafficking, terrorist financing or other criminal activity.

Officials from HSBC and the Comptroller of the Currency, a lead regulator of the bank’s U.S. operations, will testify before the Senate panel, the subcommittee said on Monday. An HSBC official likely will be grilled on how the bank dealt with high-risk clients who moved money through HSBC and the U.S. banking system.

Earlier this year, the bank named former top U.S. Treasury Department official Stuart Levey as chief legal officer. Levey had specialized in combating terrorism financing. It is not known whether Levey will testify before the panel. The hiring of a top former Treasury official signaled the bank’s desire to show it was committed to combating illegal financing.

The Senate panel, chaired by Sen. Carl Levin, has issued a number of investigative reports in recent years to examine money laundering and tax evasion in the U.S. financial system. In 2011, the panel examined how Wall Street firms and banks profited from the boom and bust of the U.S. housing market.

In the statement, HSBC said it is cooperating in the Senate investigation and with U.S. regulatory authorities. (Reporting by Carrick Mollenkamp in New York, editing by Dan Wilchins and Andre Grenon)

(Reuters) – Renting an apartment in the U.S. became even more expensive during the second quarter, as vacancies set a new 10-year low and rents rose at a pace not seen since before the financial crisis, according to real estate research firm Reis Inc.

The average U.S. vacancy rate of 4.7 percent was the lowest since the fourth quarter of 2001, down 0.2 percentage points from the prior quarter, according to preliminary data Reis released on Thursday.

Asking rents jumped to $1,091 per month, 1 percent higher than the first quarter and the biggest increase since the third quarter of 2007. Excluding special perks designed to lure tenants, like months of free rent, the average effective rent rose 1.3 percent to $1,041.

“The improvement in rents is pretty pervasive,” said Ryan Severino, Senior Economist at Reis. “Even in places like Providence and Knoxville, which you don’t think of as hotbeds for apartment activity, landlords felt the market was strong enough to raise rents on their tenants.”

Those two cities, in Rhode Island and Tennessee, respectively, posted quarterly effective rent increases of 0.7 percent, the smallest quarterly rise of the 82 areas tracked by Reis. No area posted a decline. On an annual basis, effective rents rose by at least 2.2 percent nationwide.

Severino characterized the broad increase in rental prices last quarter as “pretty amazing.”

Apartment dwellers have been facing higher rents since late 2009 but the pace of increase has been picking up steam over the past three quarters.

The surge in rental prices stems from a growing number of people who are looking for places to live, but are not willing or able to buy a home because of the ongoing slump in the housing market and tight lending conditions.

A dearth of new construction has also led more and more people to squeeze into tight urban areas at higher prices.

Generation Y has also been a driving force for higher rental prices in urban areas, particularly in cities like New York and San Francisco, where job markets are relatively strong. Even though home ownership costs less than renting, young professionals prefer to rent apartments in tightly packed cities than move out to the spacious suburbs, Severino said.

“This generation doesn’t hold home ownership on a pedestal the way prior generations did,” he said.

These dynamics have made the U.S. apartment market the best performing sector of commercial real estate since early 2011. That has helped landlords such as Equity Residential, Post Properties Inc, UDR Inc and AvalonBay Communities Inc, which have large concentrations of high-end apartment buildings in urban areas.

The particularly dense and expensive rental market of New York City loosened up slightly in the second quarter, with vacancies inching up 0.2 percentage points. Yet with a vacancy rate of 2.2 percent, New York remains the tightest market in the country and is by far the most expensive.

New York’s effective rents rose at a rapid 1.7 percent clip from the previous quarter and 3.9 percent from a year earlier. The average renter’s effective monthly tab of $2,935 beats the second-most expensive city, San Francisco, by over $1,000.

That California innovation hub and other technology-oriented markets like Seattle, Boston and Denver also posted sizeable gains in effective rents on both a quarterly and annual basis.

Memphis, Tennessee, had the lowest vacancy rate at 9.2 percent. The cheapest city to live in of the 82 urban areas that Reis tracks was Wichita, Kansas, whose monthly rent of $510 was less than half the U.S. average.

(Reporting By Lauren Tara LaCapra; Editing by Phil Berlowitz)

(Reuters) – Facebook Inc and Yahoo Inc have struck a broad advertising partnership as part of a final settlement of dueling patent lawsuits, technology blog AllThingsDigital cited sources close to the pact as saying on Friday.

Both boards approved a strategic deal that will encompass joint online advertising sales and cross-licensing of key patents. No money will change hands in the deal to be announced later on Friday, it added.

Yahoo sued Facebook in March, claiming the No. 1 social networking company infringed 10 patents including several that cover online advertising technology. In its lawsuit, the company said Facebook was considered “one of the worst performing sites for advertising” prior to adopting Yahoo’s ideas.

Facebook, which went public in May, filed a countersuit of its own a month later and called Yahoo short-sighted for its decision to prioritize “litigation over innovation.”

Yahoo brought its lawsuit while the company was under the leadership of then-Chief Executive Scott Thompson. Thompson was ousted from the company shortly after the case began, amid questions about his resume.

On Thursday, sources told Reuters that Hulu CEO Jason Kilar and current interim CEO Ross Levinsohn are now in the final running for the top job.

Facebook has been beefing up its patents arsenal. In April, it announced to deal to pay Microsoft Corp $550 million for hundreds of patents that originated with AOL.

(This story is refiled to change company name to Inc, not Corp, in first paragraph)

(Reporting by Edwin Chan; Editing by Leslie Gevirtz)

(Reuters) – Germany’s markets regulator has launched a special probe into Deutsche Bank over suspected manipulation of interbank lending rates, joining authorities around the globe investigating the world’s largest banks, two people familiar with the matter said on Friday.

Investigators in the United States, Europe and Japan are examining more than a dozen big banks over suspected rigging of the London Interbank Offered Rate (Libor). Britain’s Barclays has so far been the only bank to admit wrongdoing, agreeing last week to pay a fine of more than $450 million.

The Libor rates, compiled from estimates by large banks of how much they believe they have to pay to borrow from each other, are used to determine interest rates on trillions of dollars worth of contracts around the world.

The two sources said Germany’s BaFin regulator was now probing Deutsche Bank with a “special investigation”, a process initiated by the regulator which is more severe than a routine investigation initiated by a third party.

The results were expected to emerge in mid July, one of the sources said.

Deutsche Bank said earlier this year it was cooperating with authorities investigating manipulation of Libor, the only German bank to make such a disclosure so far.

The bank declined to comment on Friday but referred to its quarterly report, which said it has received subpoenas and requests for information from U.S. and European authorities in connection with setting interbank rates.

BaFin declined to comment specifically on whether it was probing Deutsche Bank but said it was in looking into suspected manipulation of Libor rates by banks.

“We are making use of our entire spectrum of regulatory instruments, so far as this is necessary,” a spokesman said.

Deutsche Bank has disclosed that it is cooperating with the U.S. Department of Justice, the U.S. Securities and Exchange Commission, the Commodity Futures Trading Commission, and the European Commission on Libor. These inquiries relate to periods between 2005 and 2011.

As the credit crisis intensified between 2006 and 2008, allegations started mounting that Libor no longer reflected the real cost banks were paying for funds. Authorities have been examining whether traders tried to influence the rate to profit on bets on the direction it would go.

The daily Libor poll asks banks at what rate they think they will be able to borrow money from each other in 10 major currencies and for 15 borrowing periods ranging from overnight loans to 12 months.

The rates submitted by banks are compiled by Thomson Reuters, parent company of Reuters, on behalf of the British Bankers’ Association.

(Reporting by Jonathan Gould, Alexander Huebner and Philipp Halstrick; writing by Edward Taylor)

(Reuters) – Soaraway sales of the Galaxy smartphone drove record quarterly profit of $5.9 billion at Samsung Electronics, though the South Korean tech giant is fretting over how Europe’s debt crisis is denting demand in its biggest market for televisions and home appliances.

In its April-June earnings guidance on Friday, Samsung, valued at $170 billion and the world’s leading maker of TVs, smartphones and DRAM memory chips, estimated operating profit jumped 79 percent to 6.7 trillion won from a year ago – in line with an average forecast in a Reuters survey of 23 analysts.

That would be 14.5 percent higher than the previous record quarterly profit in January-March. Samsung estimated its second-quarter revenue at 47 trillion won ($41.4 billion), just below a 50 trillion won forecast.

Samsung is due to release its full second-quarter results – the first since former components chief Kwon Oh-hyun took over as CEO – towards the end of this month.

The company’s flagship Galaxy smartphones are likely to have stretched their lead over rivals Apple and Nokia – despite a parts shortage that meant it struggled to keep up with stronger-than-expected demand for its latest S III model.

SWEATING OVER EURO

While strong handset sales grab the headlines, more than doubling profit growth, other businesses such as chips and consumer electronics are battling weak prices and demand and a limping euro, which eats away at repatriated profits.

In a sign that the euro zone crisis is exercising minds in boardrooms around the globe, Samsung executives said this week the group was operating to a contingency plan.

“Europe is our biggest consumer electronics market and we may have to initiate cost cuts and product price increases should the euro fall further from the current level,” said one executive who didn’t want to be named as the plan is internal.

“Our smartphones are flying off the shelves, with some outlets reporting 40-60 percent sales growth, but that’s distorting the overall trading outlook which is more challenging due to the weak global economy and a weak euro.”

The euro has fallen around 5 percent against the Korean won since April, and about 8 percent in the past year, to 2-year lows.

“Revenue is below our forecast, which suggests price pressure was more severe than had been expected in products such as televisions and home appliances,” said Nho Geun-chang, analyst at HMC Investment Securities in Seoul.

“Earnings will be stronger in the current quarter as sales of the high-end Galaxy S III will increase dramatically and drive the telecom division’s earnings to above 5 trillion won,” he said, predicting shipments of the S III would hit 19 million this quarter.

Samsung and local rival LG Electronics are among the few global TV makers making money and gaining market share from stumbling Japanese rivals Sony, Panasonic and Sharp.

But, spooked particularly by a weak chip market, Samsung shares have dropped 15 percent in the past two months, while the broader Korean market has fallen just over 5 percent, and Apple has gained almost 3 percent.

MOBILE DRIVER

Profit from the mobile division is likely to have more than doubled to around 4.4 trillion won from a year ago, with sales of around 50 million smartphones – at a rate of 380 every minute.

Current quarter mobile profits are expected to forge further ahead as the latest Galaxy model enjoys a boom before the next iPhone launch – driving the company’s profit to a record of nearly 8 trillion won. The mobile business brings in more than 70 percent of Samsung’s earnings.

While the next iPhone, expected later this year, will likely slow Samsung’s handset earnings growth, it will boost the Korean firm’s semiconductor earnings as Samsung is the sole producer of processing chips used to power the iPhone and iPad, and also supplies Apple with mobile memory chips, NAND flash and display screens.

($1 = 1135.0750 Korean won)

(Editing by Ian Geoghegan)

(Reuters) – The race to become Yahoo Inc’s next chief executive appears to have come down to two candidates: current interim CEO Ross Levinsohn and Hulu CEO Jason Kilar.

According to two sources with knowledge of the situation, Levinsohn and Kilar are the last names left on the Yahoo board’s shortlist for permanent CEO of the company.

Yahoo, the once iconic Internet company, has struggled to find its footing in the new digital world dominated by the likes of Apple, Google, Facebook, and Twitter.

The company has essentially been rudderless since turning down Microsoft’s $44 billion takeover offer in 2008. Since that time, Yahoo has plowed through four CEOs in as many years, among them Terry Semel, co-founder Jerry Yang, Carol Bartz, and most recently, Scott Thompson.

Yahoo’s board also had on its shortlist Jonathan Miller, currently News Corp’s Chief Digital Officer and former CEO of AOL Inc, and wanted to speak with him about the position, but Miller declined to pursue discussions, said a source familiar with his thinking.

According to this source, Miller put the brakes on any talks with Yahoo’s board out of respect for his friendship with Levinsohn, who has long wanted to run a company as CEO. Prior to their current positions, Miller and Levinsohn ran an investment firm together named Fuse Capital.

Kilar, however, has no such personal relationship with Levinsohn, which is why he is still on the shortlist.

Executive recruiting firm Spencer Stuart is leading the search on behalf of Yahoo.

While Kilar is being seriously considered for the role, Levinsohn is still thought of as the favorite to take the position on a permanent basis, according to one of the sources.

Since taking over as interim CEO in May after Scott Thompson’s forced resignation, Levinsohn has been acting and making decisions as if he has already won the seat, this source said.

Levinsohn hired former Google director and media veteran Michael Barrett as Chief Revenue Officer to help lead Yahoo’s efforts to reemerge as an entertainment and information destination that wins advertising revenue.

Those close to Levinsohn have said he is committed to building out Yahoo’s own video programming and striking more syndication deals in pursuit of ads that command a higher price, and Barrett’s hiring underscores that strategy.

Miller and Levinsohn were not immediately available for comment. A spokesman for Yahoo’s board, Charles Sipkins, declined comment, as did a representative for Hulu.

(Reporting by Nadia Damouni; Editing by Peter Lauria, Gary Hill, Andrew Hay and Leslie Gevirtz)

(Reuters) – The largest global banks on Tuesday expressed confidence they can be salvaged or dismantled without taxpayer bailouts if they became insolvent, as U.S. regulators released public portions of these banks’ “living wills”.

The documents, required by the 2010 Dodd-Frank financial reform law, are resolution plans that try to get rid of the idea that financial giants are too big or too complex to fail.

If regulators find that the resolution plans are not credible, they can force the banks to sell off business lines or restructure in other ways.

The public portions released on Tuesday were not detailed and are just a fraction of the hundreds of pages submitted confidentially to regulators.

But the banks aimed to make clear that the resolution plans will work, with no cost to taxpayers or great consequence to the financial system. Many institutions also mentioned how they had taken steps to bolster their capital or manage risk to avoid ever needing to use the plans.

“The Resolution Plan would not require extraordinary government support, and would not result in losses being borne by the US government,” JPMorgan Chase & Co said in its document, while also emphasizing its “fortress balance sheet”.

The eight other banks who submitted wills were Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS.

The Federal Reserve and Federal Deposit Insurance Corp released the plans without commenting on them.

Guggenheim Partners financial policy analyst Jaret Seiberg said the documents contained few shocks, and said his feeling is that regulators will not take an extreme approach with the resolution plans.

“Our initial review suggests there is little real risk that regulators could reject one of these plans,” Seiberg said in a note. “That is important because regulators could break up a financial firm that fails to submit a credible plan.”

The regulators plan to give feedback to the banks on the initial plans by September.

Other large banks will have until July and December of next year to hand in their plans, according to the FDIC. Eventually about 125 banks are expected to submit plans.

Congress called for the plans in Dodd-Frank to ease concerns that some banks are so big and interconnected that taxpayers will inevitably bail them out to avoid a threat to global markets.

The FDIC gained new powers in Dodd-Frank to use the plans to dismantle failing financial giants if the bankruptcy process would not work.

KEEP IT SIMPLE

Citigroup found a special reason to argue that its resolution planning would work: its wrenching experience in the 2007-2009 financial crisis.

To recover from the crisis, Citigroup separated businesses to be sold or gradually liquidated from those it is keeping as its “core” pursuits. The company said that process meant its “personnel would be well equipped to assist regulators” if the company had to be divided up into pieces to be sold or closed.

“Citi is today a fundamentally different institution than it was before the crisis: smaller, leaner, safer, sounder, and completely focused on our core mission,” it said in the summary of its resolution plan.

Throughout the 42-page document, Bank of America emphasizes steps it has taken in recent years to streamline the company, build capital and improve risk management.

“Bank of America has strengthened its risk culture as evidenced by improvements in consumer and commercial credit quality and decreases in market and counterparty risk,” it said.

Bank of America has lagged its rivals in recovering from the financial crisis, largely due to mortgage losses tied to its 2008 Countrywide Financial purchase.

Bert Ely, a banking consultant in Alexandria, Virginia, said he was skeptical that the overall process could work because there would likely be a lot of turmoil in the markets when the plans were needed, raising questions about who might buy any assets.

“The presumption of a one-off event is not realistically valid,” he said. “You can have one company blow itself up, but more often than not there are systemic problems.”

INTERNATIONAL FRAMEWORK

Some of the foreign banks outlined resolution strategies for both home and U.S.-based regulators.

Deutsche Bank imagined high levels of international cooperation, noting it could be dismantled “in an orderly manner with minimal systemic disruptions, and that any cross-border issues arising from financial, operational or other interconnections could be adequately addressed without significant difficulties,” it said.

Barclays said effective resolution plans are “an integral component of eradicating ‘too big to fail’ for the largest global financial institutions.”

It also noted how critical cooperation will be among international regulators.

Barclays submission, dated July 2012, was already out of date. It listed Marcus Agius as chairman and Robert Diamond as CEO. Both have resigned in response to a Libor interest rate rigging scandal.

(Reporting by Alexandra Alper in Washington; David Henry and Lauren Tara LaCapra in New York; and Rick Rothacker in Charlotte; Writing by Karey Wutkowski; Editing by Tim Dobbyn)

(Reuters) – Barclays chief executive Bob Diamond suddenly quit on Tuesday over an interest rate-rigging scandal that threatens to drag in a dozen more major lenders but suggested the Bank of England had encouraged his bank to manipulate the figures.

“The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen,” said Diamond, 60. The terms of his severance were not announced, though Sky News said the bank would ask Diamond to forfeit almost 20 million pounds ($30 million) in bonuses.

Politicians and newspapers have zeroed in on the scandal – which revealed macho e-mails of bankers congratulating each other with offers of champagne for helping to fiddle figures – as an example of a rampant culture of wrongdoing in an industry that stayed afloat with huge taxpayer bailouts.

Barclays released an internal 2008 memo from Diamond, then head of its investment bank, suggesting that the deputy governor of the Bank of England, Paul Tucker, had given Barclays implicit encouragement to massage the interest figures lower during the peak of the financial crisis in order to present a better picture of the bank’s financial position.

According to the memo, Tucker told Diamond he had received calls from senior government officials. “It did not always need to be the case that we appeared as high as we have recently,” Diamond said he had been told.

The Bank of England declined to comment, but analyst Ian Gordon at Investec said: “Based on first inspection it does seem to suggest that Barclays have received a message from the Bank of England which provided, to put it mildly, significant encouragement.

“So they’re maybe trying to share the blame but with justification. It raises a whole bunch of questions, and they’re very serious and they’re for the Bank of England to answer.”

However, Alistair Darling, Britain’s finance minister at the time, said he found it hard to believe that the central bank would have made such a suggestion: “What Bob Diamond or Barclays appear to be saying is that the Bank (of England) told them to do this,” said Darling, whose Labour party is now in opposition.

“I would find it absolutely astonishing that the Bank would ever make such a suggestion and equally I can think of no circumstances that anyone, certainly in the department which I was responsible for – the Treasury – would ever suggest wrongdoing like this,” he told Channel Four television.

Noting how the central bank provided cash to help ease the upward pressure on commercial banks’ borrowing costs, he said: “Policy was changed in order to get that rate down.

“However it would have been reprehensible and wholly unforgivable if anyone had attempted to try and manipulate this rate by simply putting in false figures.”

SUDDEN REVERSAL

Diamond’s resignation was a sudden reversal, hours after the American said it was down to him to clear up the mess at Britain’s third-largest bank, fined nearly half a billion dollars for its part in manipulating the benchmark interest rate used to price everything from derivative instruments to home loans.

There was speculation in banking circles over whether Diamond, one of Europe’s highest paid bankers and once labeled by a Labour minister as the “unacceptable face” of banking, jumped or was pushed.

Prime Minister David Cameron had announced a parliamentary inquiry after calling for Diamond to take responsibility for the scandal, and the Financial Services Authority regulator had also brought pressure to bear on the board.

The government is now considering the introduction of criminal sanctions for serious misconduct in the management of a bank, the finance ministry said on Tuesday.

FSA Chairman Adair Turner said on Tuesday he had had private conversations with Barclays since Friday morning about the need for “cultural change” at the bank.

“We communicated to the board those were the sort of issues they needed to think about, but it was for them to decide whether they could achieve that degree of change … under the current leadership,” he said.

Diamond sent a long letter to staff on Monday making clear his resolve to continue. But he and the board decided he should quit later that day after Cameron and finance minister George Osborne announced the parliamentary inquiry.

“A FIRST STEP”

Diamond’s resignation was “a first step towards that change of culture, that new age of responsibility we need to see”, Osborne told BBC radio.

“The chairman of Barclays phoned me last night to let me know that this was the decision of the board and of Mr. Diamond, and I think Mr. Diamond made the right decision,” Osborne said.

Diamond will appear before the parliamentary inquiry on Wednesday, where his memo on the attitude of the Bank of England towards the manipulation of the interest rate at the time is likely to take centre stage. His evidence will have legal immunity.

Outgoing chairman Marcus Agius will lead the search for a new CEO, despite having announced his own imminent departure a day earlier. Newly appointed Chief Operating Officer Jerry del Missier, long a Diamond lieutenant, also left.

The reversal was a shock within the 322-year-old bank, which in recent years has boasted an aggressive culture cultivated by Diamond, first as head of investment banking and then as CEO. One Barclays banker, asking not to be identified without permission to speak publicly, said staff were disappointed.

“Everyone here has been bandying around names, but it’s going to be hard to find someone of the same quality as Bob and John (Varley, his predecessor). I guess it would be hard to appoint someone from the investment banking side now.”

Barclays has admitted it submitted falsely low estimates of its borrowing costs to calculate interbank rates from late 2007 to May 2009, a time when Diamond ran investment banking. Large banks’ estimates of the interest rates they pay each other are used to calculate the London Interbank Offered Rate, or Libor, basis for trillions of dollars in contracts around the globe.

By manipulating the figures, banks could give flattering impressions of their financial strength. Barclays says it submitted low figures because it thought rivals were doing the same and higher rates would have made it seem to be in trouble.

The Libor figures submitted by banks are compiled by Thomson Reuters, parent company of Reuters, on behalf of the British Bankers’ Association.

Opposition Labour Party leader Ed Miliband, who has said he wants to see criminal prosecutions of Barclays bankers, welcomed Diamond’s resignation but said a parliamentary inquiry was not enough and demanded an independent probe led by a judge.

“This is about the culture and practices of the entire banking system, which is why we need an independent, open, judge-led, public inquiry,” he said.

The government said a judge-led inquiry would take too long to be of use shaping new laws to tighten rules. Cameron, elected in 2010, has repeatedly made the point that Miliband’s Labour was in power at the time of the wrongdoing.

NAMES IN THE FRAME

Antony Jenkins, currently chief executive of Barclays retail and business banking, is the most likely internal candidate to replace Diamond, said Oriel Securities analyst Mike Trippitt. However, the firm may choose to look outside for a new leader to turn the page on the scandal.

“Promoting an existing manager might not look like it is doing enough to tackle problems with aspects of the bank’s culture which the LIBOR scandal has exposed,” one top 25 Barclays investor said, asking not to be identified.

Other names in the frame include former JPMorgan investment banking co-head Bill Winters and Naguib Kheraj, the ex-Barclays finance director and former CEO of JPMorgan Cazenove.

“I struggle to see many worthy candidates to replace him,” said a top 40 investor.

Barclays shares, which rose on the news of the departure of Agius on Monday, were down 1.1 percent late on Tuesday at 166.5 pence, while the European banking stocks index was flat. The shares were down more than 15 percent from Thursday’s open.

Barclays was fined $453 million by U.S. and British authorities, the first bank to settle in an investigation that is looking at more than a dozen others, including Citigroup, UBS and RBS.

(Additional reporting by Sinead Cruise, Chris Vellacott, Victoria Howley, Sophie Sassard, Douwe Miedema, Hugh Jones and Matt Falloon; Writing by Will Waterman; Editing by Peter Graff andGiles Elgood)