Published on 3 Jul 2012

Diamond not forever as UK banking changes for good

Absolutely extraordinary news from the top of the Barclays tower this morning. Bob Diamond’s resignation is a watershed in Britain’s relationship with its banks. It would have been utterly unthinkable to think that a leading non-bankrupt banker would have been forced out by essentially political pressure.

It’s doubly unthinkable that a tough street fighter such as Mr Diamond would throw in the towel. It is extremely out of character, and his statement was pretty clear that he feels he has been hounded out by politicians.

Who was behind the resignation?

It might well be that the intervention of Sir Mervyn King, has ultimately done for him. It was a complete coincidence that the Bank of England hosted a press conference on Friday morning. But the governor’s words illustrated just how fraught the relationship had become between Barclays and its central banker.

The Barclays board did confirm Diamond in place on Friday, but Sir Mervyn’s very public intervention clearly gave cover for the Labour party, primarily, to pursue Mr Diamond’s position. Then it appeared that the Barclays chief faced a difficult explanation of a 2008 Libor phone call with Deputy Governor Paul Tucker tomorrow.  The long-missed power of the governor’s eyebrow, appears to be back.

Even as Mr Diamond denies he is resigning for having done anything wrong, my feeling is that certain aspects of the Barclays account of the Libor scandal seemed extraordinary. It would have taken quite an heroic explanation in front of MPs.

Two scandals for the price of one

Remember, this is two scandals in one. The first occurred in Bob Diamond’s Barclay’s Capital. Traders enriched themselves, though apparently not Barclays’ top-line profits. Diamond did not know, which is a failure of sorts.

The second scandal is more excusable in a way, but directly involves Mr Diamond. There were industry-wide attempts to lower Libor submissions as a strategy to calm fears about financial stability. Other banks were at it. The question: was it tacitly sanctioned by authorities? That is a conversation that could pit Barclays’ explanation directly against the Bank of England, its lender of last resort, in the public forum of the Treasury select committee.

He has been a brilliant risk taker. At a time in 2008 when, frankly, many financiers and journalists such as myself were deeply worried about Barclays’ financial fragility, Mr Diamond held court after a results announcement and said that the crisis was a unique opportunity to win market share. He was talking about and planning a takeover of Lehman Brothers.

At the very peak of the crisis in September 2008, he was there at the Fed in NY, hustling and trying to get the best deal on Lehman’s. Sceptics were proved wrong. Buying the bulk of Lehman’s out of bankruptcy was the steal of the century, catapulting Barclays in to the Wall Street top tier at vast profit, with minimal risk. Lehman’s midtown Manhattan HQ was immediately drenched in Barclays’ laser blue. Diamond had returned to NY as a conquering hero.

He was also the driving force behind Barclays attempt to buy ABN Amro in 2007. Many would argue that he luckily dodged a bullet instead taken by Fred Goodwin at RBS, who outbid Barclays. Diamond says that the deal was “fully hedged” as it was in shares. RBS paid in cash. He was also behind the expansion success and lucrative sell off of the exchange-traded fund business iShares.

Misjudgement

During that era Diamond, as Barclays president, was balanced off by John Varley, the patrician chief executive. The Lennon and McCartney of banking. The argument would be that his risk-taking trader instincts needed a foil.

Over the past year, Barclays has been settling a series of problematic legal entanglements, from aggressive tax schemes to this Libor scandal. This was a form of trying to trade away large chunks of reputational and legal risk.

It obviously hasn’t worked as intended. There has been a misjudgement of the public mood and policy backdrop.

“I don’t think the Bob Diamonds of this world would have resigned four or five years ago,” said the chancellor on this morning’s Today programme.

We have entered a new world. Politicians now appear sovereign over our banking system. Many in Britain will welcome that. For many, it will be a profound shock. And this is just the beginning.

Follow @faisalislam on Twitter.

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15 reader comments

  1. citizen smith says:

    You seem to ‘praise’ the man for his risk taking earlier in his career. I think we have to judge the man on his total integrity and performance not one or two individual strenghts.

    Back to the reason for leaving. So what is the difference in the package (legal/financial) he gets today versus what he might get at another point in the future?

    I dont beleive the reason why he has gone now is anything to do with the external pressure. From what everyone says about this bloke he is a cool, calculating individual.

    Follow the money!

  2. www.EamonnBlaney.com says:

    “Politicians now appear sovereign over our banking system”. Seriously Faisal, you don’t actually believe that, do you?

  3. Philip Edwards says:

    Faisal,

    Here’s a safe bet: Diamond’s departure won’t make the slightest bit of difference to a system that will simply be sandbagged until the water recedes.

    Meanwhile, here’s some useful suggestions: nationalize the banks. Get rid of the casino system. Restore genuine regional banking with major investment going to where it is most needed outside London. Get rid of the “City of London” culture and attendant mentality. Restore all our cities and regions ignored by London cowboys and spivs. Freeze all new building developments in London for at least ten years. Make all senior banking figures subject to local election, and make them subject to weekly public interrogation.

    It won’t happen of course. The system will be merely adjusted. Similar thieves, liars and hypocrites will be placed in position. And the media will do next to nothing, as has been the case for the last thirty odd years. Theft of national wealth will go on in a different guise.

    Plus ca change, plus la meme chose.

  4. Spacexecadet says:

    Great summary & analysis Faisal.

  5. tas says:

    “Politicians now appear sovereign over our banking system.”

    Really… You mean the bank-specific and systemic nature of the LIBOR scandals, which make recent fraud scandals like Jerome Kerviel and Kweku Adoboli look like drops in an ocean, is not enough? Especially when individuals like Diamond have been directly implicated or culpable at the time? The former get X years in prison, yet these guys don’t even get a slap on the wrist…

    In addition, you point out in your own article the growing pressure was largely from the BoE as well as the public affront on the back of one of the most devastating financial crises ever seen. Yet you provide no evidence of political interference.

    You can be sure Diamond knows what he is doing. Leaving like this minimises reputational risk for him and he will be snapped up by other institutions based purely on his past results (not his integrity) in the next debt/cb liquidity-driven financial boom.

    As for the LIBOR scandal, even it pales in frequency and extent in comparison to on-going modern finance’s manipulation of other fixings and standards, especially in OTC derivatives.

  6. Jim1963 says:
  7. Kate says:

    Agree with tas.

    I see little changing. And neither will it mark the end of Diamond as a high player.
    Look how quickly Fred the Shred was rehabilitated.
    What is incredible and actually sums up the whole rotten set up is that he was given the option of resigning – it was his decision to make.
    And as if that isn’t a slap in the face to Joe Public who have been ripped off for years by his bank, Second – in – Command stands down saying “the buck stops here” and in the blink of an eye returns to run the show! Ostensibly promoted! How ridiculous is that?

    All of this, days after the news broke, tells us that nothing is going to change.

    This affair is about more than the (perceived) resignations of a handful, though Cameron and Osborne will do their damnedest to assure us that “lessons have been learned”. Remember, words like “criminality” “guilty” and “fraud” are only for you and me.

  8. Kate says:

    Faisal – I could be a “brave risk taker” … it’s dead easy when it’s not my money.

  9. Questions says:

    Establishment Chappie 1; “Wizard idea chaps! Let’s put Fred Goodwin in as CEO of Barclays and Bob Diamond can take over from Stephen Hester at RBS.”

    Establishment Chappie 2; “What ho! We can give Stephen a role at the IMF with a tax free salary.”

    Establishment Chappie 1; “Excellent! Everbody’s satisfied. I’ll see you at tomorrows Audit Committee meeting.”

    …and that’s the problem; the UK Establishment continues to do as it wishes. The only way to improve things is to get rid of our current crop of politicians, voting in people with the integrity, guts and tenacity to do right by the people of the UK.

  10. Darren Nelson says:

    The UK is run by bankers,they support the three elitist party’s,they put them on their boards after they have served their term,they finance weapon’s sales for wars and dictate government policy therefore.They are rotten to the core Faisal knows that but it’s not the done thing to say so.

    1. Questions says:

      Don’t forget – most major political parties survive on multi-million pound overdrafts after General Elections.

      It looks like the ruthless pursuit and retention of power costs a fortune, but back-scratching helps as long as you don’t bite the hands that feed you.

  11. Rob's Uncle says:

    Dear Faisal Co.: you’re missing the point. Stop wittering on about Barclays and instead ‘follow the money’; get your heads round this:

    The Big Losers in the Libor Rate Manipulation
    http://preview.tinyurl.com/chjfp8u

  12. Larry Vore says:

    We seem to be having a succession of parts of our society preaching rights without obligations and demonstrating a contempt for the society they are part of. We had the politicians stealing with their expenses, the press stealing our rights and now the banks ripping us off as if it was their obligation!

    A corrupt society where we seem to want one of the offenders to judge another. Guilty judging the guilty. A cover up inevitable.

    Sick or what?

  13. citizen smith says:

    I’m really not sure about all these Oxbridge people involved in the analysis of this scandal.

    Oxbridge old boys stick together. So i dont see how the likes of Peston, Robinson, Gibbon and Islam can be trusted. Convince me otherwise Faisal!

    I dont see any independant analysis … in the press, in the govt, in the FSA, BBA etc etc.

    It all smells a bit for me.

    Need to perhaps get a steer via the Keiser Report on RT.

Comments are closed.