Bob Diamond is a brilliant banker, one of the most successful of his generation. Diamond has also been a lucky banker. Today, he exhausted his reserves of good fortune.
Tied to luck is judgment. For all his qualities, Diamond’s judgment has often been questionable. He’s survived that failing on numerous previous occasions, but not this time.
Over the past 48 hours, stories started to leak that Barclays would try to pin some of the blame for its role in the Libor scandal on the Bank of England – that, in some way, the Bank was complicit in allowing banks to report much lower interbank funding costs at the height of the financial crisis because of the fear that, if the real rates were revealed, it would lead to a run on the banks.
Those leaks came as no surprise to Euromoney. It was a line we’d heard from various Barclays insiders as soon as the fine against the bank was announced last week.
Yesterday, it was further speculated – probably leaked – that Diamond planned to bring the Bank of England’s involvement up during his appearance at the Commons Treasury Select Committee on Wednesday.
For a board that had up to that point been supportive of Diamond – chairman Marcus Agius even threw himself under the proverbial bus to try to protect his CEO – this was probably the final straw.
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Diamond should have taken a page from the Jamie Dimon playbook. As soon as the JPMorgan CIO losses were fully revealed, Dimon did not mince his words. He blamed himself. He blamed the bank. He didn’t point the finger elsewhere. He fired the people directly responsible. He was scathing in his assessment of his own institution’s ineptitude. It probably pained him to do it, but it worked – Dimon came out of a Congressional hearing with his reputation enhanced and his position as strong as before, despite losses that could reach $5 billion. Diamond and Barclays made some of the right noises. But they also made some ill-judged ones as well – none more so than to seemingly threaten to involve the UK’s central bank.
“Sorry. We messed up.” That’s all Diamond needed to say. Fire the people responsible. That’s what Diamond needed to do.
When he didn’t, the board was left with little choice but to ditch the horse it had backed so strongly. This is not a time to be fighting regulators or politicians. That’s why, less than 24 hours after Diamond wrote perhaps the longest letter to employees in history, setting out exactly what he was going to do to restore Barclays’ reputation, he finds himself out of a job.
What’s next for Barclays?
Barclays now finds itself in the extraordinary position of having a chairman who has already resigned as acting CEO. What a mess. Agius resigned to try to staunch the blood flowing from his then chief executive’s office. It was never going to work – not when the front pages of tabloids such as The Sun were calling for Diamond’s head.
Who takes over? In fact, what comes first – a new chairman or a new CEO? You’d have thought any chairman worth his salt would want to have the final say in the appointment of his new chief executive – and the new chairman of Barclays will need a cellar-full of credibility and experience if he or she is to turn things round quickly.
For chief executive, it is not easy to find strong internal candidates: Rich Ricci, head of the investment bank, is another US investment banker, like Bob; Jerry del Missier, who, just a few days before the Libor fine was announced, moved out of the investment bank to become group COO, may be Canadian but will be viewed similarly. But he is expected to follow Diamond out of the bank.
Both del Missier and Ricci are incredibly close to Diamond. Ricci needs to be persuaded to stay on. He is loyal to the institution, and he will know that the last thing his friend and mentor will want to see, now he has left, is the institution fall apart.
Tom Kalaris is another Diamond acolyte who grew up through the investment bank, but has since made a strong impression in the less controversial world of wealth management. He’s a classy individual who would probably do a good job, but may still be too close to Bob.
The other internal candidate would be Antony Jenkins, chief executive of retail and business banking. He’s British and not an investment banker, which might give him a head start. He is seen by many as a solid, reliable business leader – but the trouble is, not by many of the people at the old Barclays Capital that now dominates the group. At Euromoney, we’ve heard various sneering appraisals of Jenkins’ credentials for group CEO when we’ve mentioned his name to traders and investment bankers. Could Jenkins keep the group together and harness the investment bank?
Outside candidates will include Bill Winters, former head of JPMorgan’s investment bank, whose reputation has grown since he left his old firm. He understands investment banking. As a member of the Vickers commission on banking, he would also bring credibility and of course an ability to deal with the challenges that new regulation presents.
Credibility could also come in the form of Peter Sands, the CEO of Standard Chartered. Sands has done a great job, both in terms of boosting its profits and marking StanChart out as a bank that understands its wider role in the community and society. Barclays could do with a little of that right now. It’s doubtful he could be persuaded to jump ship, but he’s been in his role for six years. He may fancy a new challenge – though the one at Barclays will be daunting.
Another option could be Josef Ackermann, the recently departed CEO of Deutsche Bank. Ackermann knows all about dealing with political pressure while running a bank. He knows both retail and investment banking. He may feel he has unfinished business with the industry.
Diamond’s tarnished legacy
How will Diamond’s time at Barclays be viewed with hindsight? Once the dust settles, it will broadly be seen as a success. He created a successful global investment bank almost from scratch. Very few people have managed to do that.
He will also be seen as occasionally lucky but lacking in judgement. In 1998, the old BZW’s losses in Russia almost brought down the investment bank and caused huge losses for the group. Bob survived. His CEO Martin Taylor carried the can for the losses. Many former Barclays execs still wonder how that happened.
Right now, Diamond probably feels like he knows how Fred Goodwin felt. Well, he could have known even better – if RBS had not outbid Barclays for the disaster that was ABN Amro. Diamond and his then CEO John Varley dodged a deadly bullet there.
Diamond was lucky, having missed out on ABN, to pick up the good bits of Lehman Brothers for a song. This was also his greatest triumph and best show of judgement. He took a chance that he could integrate the firms quickly. He saw a unique opportunity to make Barclays a player in the US. He grasped it and made it work.
But his judgement as to how Barclays was perceived outside its own walls was flawed. Bankers there have often plaintively asked Euromoney: “Why does everyone hate Barclays?”
Our answer was not one they wanted to hear. Yes, Barclays is a great industry success story. But it is seen as too clever by half, always sailing as close to the wind as possible when it came to regulation and propriety.
That, unfortunately, was the culture of Barclays Capital under Bob Diamond. It was seen on too many occasions: questions over Roger Jenkins’ tax division; the toxic Protium deal; and finally, the Libor rate-setting scandal.
Barclays was also seen as greedy. Its senior bankers did not understand why Barclays was singled out. But that greed went hand in hand with its less-than-shiny reputation. It was exacerbated when Diamond accepted £5.7 million in tax equalization payments for his 2011 compensation. The payment was contractually right, but taking it when the bank’s shares were tumbling and return on equity was less than cost of capital was the wrong call.
Barclays is a fine bank. But it is in a terrible mess. It has lost a brilliant if flawed leader. Its next CEO inherits a banking diamond that needs an awful lot of polishing.