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• Moody's downgraded the bank's credit rating from 'stable' to 'negative'
• Comes the day after ousted chief executive Bob Diamond was quizzed by MPs over fixing of the Libor rate - the measure of the cost of lending between banks which affects mortgages and loans
  
• Ex chief says Labour seeked to nationalise bank unless he manipulated rate
• George Osborne says Gordon Brown's government was 'clearly involved'
• Labour call his remarks 'desperate' and say they demean office of Chancellor
  
• Diamond comes under increased pressure to give up 18m bonus

By James Chapman, Becky Barrow and Rob Cooper

PUBLISHED: 17:44 EST, 4 July 2012 | UPDATED: 02:08 EST, 5 July 2012

British banking giant Barclays today saw its credit rating outlook downgraded to negative to reflect concerns over the impact of Bob Diamond's shock resignation.

Ratings agency Moody's said the sudden departure of Mr Diamond, as well as chairman Marcus Agius and chief operating officer Jerry del Missier, in the wake of the rate-rigging scandal could lead to the break up of its powerhouse investment arm.

The cut - from stable to negative - comes ahead of a vote among MPs to decide whether Parliament or a judge should stage an investigation into the Libor-fixing affair, while George Osborne has accused Labour of being 'clearly involved' in it.

Ousted Barclays chief executive Mr Diamond yesterday admitted feeling 'physically ill' when he discovered traders had fiddled the key rate but denied he was 'personally culpable' for their actions.

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He also told MPs he feared Labour ministers would seek to nationalise his bank unless it pushed down a key lending measure.

In three hours of testimony a day after he quit over the rate-fixing scandal, Mr Diamond claimed the Bank of England had relayed concern about Barclays’ Libor rate from senior officials and ministers in the last government.

Following his evidence, Moody's said shareholder and political pressures 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'.

The agency added: '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.

'In addition, Moody's believes that the bank could be challenged to replace the three senior staff and in particular find a new chief executive who not only has a sufficient understanding of the investment banking business to run Barclays, but also has the credibility and ability to swiftly address the weaknesses that the Libor incident revealed and stakeholders' perceptions of the investment bank.'

Moody's said that Barclays' ratings could come under further pressure if the bank proves unable to restore a stable management structure over the coming months.

Yesterday Chancellor George Osborne raised the stakes by alleging Gordon Brown’s government was ‘clearly involved’ in pressuring banks to manipulate the rate, a measure of the cost of lending between banks which affects the cost of mortgages, loans and financial products. Labour called his remarks ‘desperate stuff’.

Grilling: The American banker, 60, leaves Parliament yesterday after giving three hours of evidence

Inquiry: Bob Diamond leaves Portcullis House, Westminster, where he was grilled by MPs yesterday

Mr Diamond clashed with several MPs during his appearance before the Treasury Select Committee, but escaped the encounter largely unscathed. He repeatedly batted away suggestions that he should give up some or all of his pay-off and future share options, expected to total as much as 20million.

Labour MP John Mann said Mr Diamond had been either ‘complicit in what was going on, or grossly negligent, or grossly incompetent’.

But the former boss said he had been ‘physically ill’ when he learned of the behaviour of traders who rigged the Libor rates, had known nothing about it before last month, and did not feel personally to blame.

Mr Diamond said emails showing that traders fiddling the rates had told each other ‘this is for you big boy’ and promised bottles of Bollinger champagne had been ‘reprehensible’.

But he suggested other banks had been manipulating their rates while Barclays was telling the truth at the height of the financial crisis.

Barclays has been fined 290million by regulators after its traders were revealed to have spent years fiddling the rate, based on individual banks’ own declarations of what they were paying to borrow.

Mr Diamond faced the most intense questioning from MPs over a key phone conversation he had with the deputy governor of the Bank of England Paul Tucker in 2008.

'Corporate greed': Clutching two bottles of Bollinger two 'bankers' appears outside Parliament yesterday in a tongue in cheek protest about greed in the financial services sector

Grilling: Bob Diamond appears before MPs sat in a horse-shoe shape on the Treasury Select Committee

He refused to speculate about the identity of ‘senior Whitehall figures’ he said Mr Tucker told him had been concerned about Barclays’ Libor rate. However, he did suggest that Baroness Vadera, a Cabinet Office minister who was a senior economic adviser to Gordon Brown, had been heavily involved in discussions with the banks at the time.

Asked whether he felt ministers were encouraging Barclays to ‘fiddle’ the Libor rate, he said: ‘I didn’t believe that.’ But he had understood there had been concern in the Labour government about the fact that Barclays’ rate seemed high compared to those being declared by other banks, raising concerns about its strength.

Mr Diamond was quizzed by MPs about a phone call with Paul Tucker, pictured, the deputy governer of the Bank of England

Mr Diamond said he had told Mr Tucker that he believed the rates being declared by rival banks – some of which had needed government bailouts – were artificially low.

‘What he was trying to tell me is “Bob, there are ministers in Whitehall who are hearing that Barclays is always high, that could lead to the impression that you are not funding yourself”,’ he said. Mr Diamond said he told the then Barclays chief executive, John Varley, that he had to ‘get to Whitehall – you have to make sure they know that we are funding fine’.

Mr Diamond was unable to explain how his note of the call from Mr Tucker was ‘misunderstood’ by another senior Barclays executive as an instruction to manipulate the rate. Jerry del Missier, co-head of Barclays’ investment bank, also resigned this week after it emerged he was responsible for ordering the artificial setting of the measure.

Andrew Tyrie, chairman of the MPs’ committee, said anyone reading the note would have understood it as a ‘nod and wink’ to lower the rate.

Mr Tyrie also claimed City watchdogs had expressed concern about Mr Diamond on two occasions.

He said the Financial Services Authority had reservations about his appointment as chief executive in 2010, and went to the board earlier this year to suggest it had ‘lost confidence’ in his leadership. Mr Diamond said it was the first he had heard of such concerns.

In an interview with The Spectator magazine published today, Mr Osborne accuses Labour of being involved in the rate-fixing scandal.

‘As for the role of the Labour government and the people around Gordon Brown – well, I think there are questions to be asked of them,’ he says.

‘They were clearly involved and we just haven’t heard the full facts, I don’t think, of who knew what when. My opposite number was the City minister for part of this period and Gordon Brown’s right-hand man for all of it. That’s Ed Balls, by the way.’

Chancellor George Osborne, pictured at this year's Davos World Economic Forum with Mr Diamond, accuses Labour of being involved in the rate-fixing scandal

Labour Treasury spokesman Chris Leslie said: ‘This is desperate stuff from George Osborne – lashing out in a frenzied way that demeans the office of the Chancellor of the Exchequer.’

Mr Balls said: ‘I had no conversation with anybody about the Libor market during any of those periods. The idea that I have an issue on this is completely false and untrue – and I would be very happy to say that to an inquiry.’

Lady Vadera denied that she had ever spoken to Mr Tucker about Libor rates and insisted she had merely added comments to a note prepared by a Government adviser entitled ‘Reducing Libor’ that was circulated days after his conversation with Mr Diamond.

‘I commented on the note, in particular to focus the issues on the lending conditions in the real economy for real people,’ the peer said. ‘There is nothing wrong with concerning yourself with access to credit. That’s the job.’

Bob Diamond refused to rule out taking more bonuses worth around 18million from Barclays despite calling the bank’s behaviour ‘inexcusable’, ‘wrong’ and ‘appalling’.

The former Barclays chief executive, who resigned on Tuesday, ignored several opportunities given by MPs to give up any claim to the money.

Despite being asked repeatedly about his plans by a Commons committee, he evaded the question, raising the prospect that the 60-year-old American will scoop yet another pay bonanza from the disgraced bank.

Mr Diamond, who has made around 120million from Barclays since 2007, simply said it was a question which must be decided by the bank’s board. During a three-hour grilling he told MPs on the influential Treasury Select Committee: ‘I have not asked them nor has it been of interest to me since I resigned.’

Earlier, David Cameron had told MPs: ‘It would be completely wrong if people who were leaving under these circumstances were given some vast pay-off.’

David Cameron told MPs that Mr Diamond receiving a multi-million pound bonus would be 'completely wrong'

And Mr Diamond’s refusal to rule out another multi-million-pound windfall jars with his withering assessment of the behaviour of the bank’s 14 rogue traders.

For several years, they were manipulating a crucial interest rate, known as Libor, the rate at which banks borrow money from each other, for their own personal gain.

Mr Diamond told MPs he felt ‘physically ill’ when he discovered emails sent by Barclays’ rogue workers about fiddling Libor.

In one email, one trader at a different bank wrote to ‘Trader G’ at Barclays: ‘Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger.’

Labour MP John Mann told Mr Diamond he should 'take the moral high ground' and forfeit a bonus

Other emails revealed how they would ‘shout’ across the desk at each other to ‘beg’ for the interest rate to be fixed at a certain level in the hope of making millions for themselves.

Another said: ‘Coffees will be coming your way either way, just to say thank you for your help in the past few weeks.’ His colleague replied: ‘Done...for you big boy.’ Mr Diamond said he had been at home at the weekend when he was sent the report from the City regulator, the Financial Services Authority, which contained the explosive emails.

He said he felt ‘physically ill’, but did not describe exactly what happened. When MPs referred to the former boss being ‘physically sick’, he did not correct them.

Labour MP John Mann called on Mr Diamond to ‘take the moral high ground’ and to forfeit any bonus or severance pay to which he might be entitled.

For example, he could be entitled to receive his 1.35million ‘basic’ salary because he has a 12-month contract, as well as 18million of bonuses, promised in previous years, which are due to pay out over the next few years. Mr Mann described the payouts as ‘phenomenal’.

Mr Diamond dodged a call from Mr Mann for him to give some ‘serious money’ to charity to make amends for the failures.

Mr Mann offered to ‘tattoo’ the founding principles of the Quaker faith – Barclays was founded by Quakers – on Mr Diamond’s knuckles. They are honesty, integrity and plain dealing.

Mr Diamond said he was not opposed to traders being sent to prison. He told MPs: ‘We are not going to stand in the way of it [criminal investigations].’