As the Libor scandal broke, Barclays’ boss did what you might expect from the man who unilaterally declared an end to City remorse for the credit crunch: he strode into an analysts’ office to say he wouldn’t be resigning.
Bob Diamond strode into the offices of Morgan Stanley on Thursday in defiant mood. The boss of Barclays – facing calls for his resignation following the bank’s record-breaking £290m fine for attempting to rig interest rates – was determined to tell the analysts who recommend buying or selling Barclays’ shares that he had no intention of walking away from a 15-year career at the bank.
The atmosphere was “tense,” as one insider put it, and the pressure was on. Barclays’ shares were on the slide. By the end of the week, more than £4bn had been wiped off their value – over 15% – in the 72 hours since the fine was revealed by regulators on both sides of the Atlantic, unleashing a wave of condemnation about the culture inside the bank.
Diamond, a US-born former lecturer who has been speaking recently about his desire to make the bank a better corporate citizen, was reportedly unequivocal. “The CEO says he has no intention of standing down,” the Morgan Stanley analysts said in their account of the meeting. “Further, the CEO was appointed 18 months ago with the full approval of the [Financial Services Authority] in knowledge of this investigation.”
After more than a decade running Barclays’ testosterone-charged investment banking arm, Barclays Capital – which even City rivals joke is staffed by alpha males – Diamond was made chief executive of the whole organisation in January 2011.
From the start, the appointment was controversial in political circles: naming an investment banker as the boss of a high street lender was regarded as a snub to a government that had pledged to separate the two arms of banking.
Diamond marked the start of his tenure by telling the Commons Treasury select committee that “there was a period of remorse and apology for banks and I think that period needs to be over”. His remarks provoked a storm of public criticism at the time. Last week, he was forced to eat his words.
Fining Barclays £290m, regulators said that traders, managers and others outside the bank had attempted to manipulate the price of Libor, the London interbank offered rate, and its European equivalent Euribor – two rates that set a benchmark for borrowing costs across significant parts of the economy.
The fallout is only just beginning. As many as 20 institutions are said to be facing investigations, but for now the focus is on Barclays in what looks to be one of the most damaging chapters yet in the troubled history of British banking.
Until the Big Bang in 1986, when Margaret Thatcher’s government unleashed a wave of deregulation, banking was a staid affair. The big high street clearers, of which Barclays was one, were conservative beasts, and if anything Barclays was the most conservative of the lot. Founded by Quakers and with strong traditional links to East Anglia, it had a long history of lending money to farmers and fishermen.
For many decades, the bank was run almost as a family dynasty, dominated by the Bevan family. A few eyebrows were raised when in 1987 an outsider, John Quinton, was appointed chairman at a time when mounting domestic competition meant Barclays had lost its status as the UK’s number one bank to NatWest.
Even then, at the height of the yuppie boom, it would have been unthinkable to the bank’s board that Barclays would depend on investment banking for the bulk of its profits and end up being fined a record sum for deceitful behaviour.
That is not to say that Barclays was risk averse, nor that it did not have its problems in the decades when retail bankers and investment bankers were two separate tribes. It ventured into areas where others followed: Barclays was the first UK bank to use a computer in its branch accounting and the first to offer customers a cash machine.
In the 1980s, however, most of its problems stemmed from its links with the apartheid regime in South Africa, which led to a student boycott that was both costly and damaging to the bank’s reputation.
A Conservative MP, Jesse Norman – a former Barclays banker who sits on the Treasury select committee – said in a recent pamphlet: “Lest we forget, two of the ‘big four’, Lloyds and Barclays, were founded and built up by Quaker families. For many years they were run on Quaker principles, which emphasised social justice, integrity, simplicity, plain dealing and thrift: ‘my yea is my yea and my nay is my nay.’
“That ethos persisted for a long time within both institutions, through numerous takeovers of failing competitors. A key reason why both banks were so successful was that their Quaker ethos and sober lending principles preserved their capital while other institutions lost their heads in speculation.”
The bank’s first foray into investment banking was hardly an unqualified success: as part of the Big Bang, it bought De Zoete & Bevan and Wedd Durlacher to form BZW. The business struggled.
Diamond was the banker charged with sorting out the troubled business when it imploded in the mid-1990s. The BZW equity business was sold to Credit Suisse, but the bank kept the debt business, which Diamond turned into a powerhouse, helping companies to raise billions to finance their business.
Buoyed by that success, Barclays became formidably ambitious. In 2007, it agreed to take over Dutch bank ABN Amro – only for another of banking’s alpha males, Fred Goodwin of RBS, to pay £49bn for it, a decision that proved fatal to the Edinburgh-based bank.
As the credit crunch raged around it, Barclays tried to buy the collapsing Lehman Brothers in late 2008, but the deal fell apart under the scrutiny of the then chancellor, Alistair Darling, who feared the consequences for the exchequer if the ailing US giant became British.
Undeterred, Barclays eventually pulled off the deal it really wanted – buying just the Wall Street operations of Lehman in the days after it went bust in September 2008.
In the mayhem that followed, Gordon Brown’s government pressed Barclays to join RBS and Lloyds in accepting financial help from the state, but Diamond, together with the then chief executive John Varley, were determined to remain independent and found cash support from the Middle East. One factor behind the decision was that they wanted to pay top dollar for the best talent the City had to offer – including Diamond himself – without the scrutiny that taxpayer backing would bring.
But if Diamond and the Barclays board thought that side-stepping a bailout would avoid any of the furore that has engulfed UK banks ever since, they were mistaken.
Analysts at Credit Suisse – who act as Barclays’ brokers – admit it is not clear why Barclays opted to settle with the regulators over the Libor probe and become the first bank to have its dirty linen aired in public. But, they add, “reading the statement by the authorities we expect to get settlements by others in the course of time which could be more punitive”.
The Morgan Stanley analysts who hosted Diamond on Thursday also point to a largely overlooked paragraph in the regulatory notices. The US department of justice said: “To the bank’s credit Barclays also took a significant step toward accepting the conduct by being the first institution to provide extensive and meaningful co-operation to the government. Its efforts have substantially assisted the criminal division in our ongoing investigation of individuals and other financial institutions in this matter.”
But if Diamond thought this would earn him credit with the public and politicians, it has spectacularly backfired. His appearance before MPs on the Treasury select committee this week will be a very public fight not only for his reputation but that of the entire banking industry.