Barclays’ chief executive has become a liability. A $450 million regulatory fine imposed after bank employees attempted to rig key interest rates has tarnished Bob Diamond’s track record. Added to previous controversies over tax and pay, it undermines his attempts to revamp the UK bank. Though Diamond has been an asset to Barclays for most of his 16-year career at the lender, the bank will find it hard to move on while he is in charge.
It is less than seven months since Diamond argued that banks should “serve a social purpose and meet a real client need”. Subsequent events have exposed the gap between his words and Barclays’ actions. In February, the bank’s use of aggressive tax avoidance schemes prompted the UK government to take the highly unusual step of retrospectively changing the law. In April, Barclays’ decision to award Diamond a hefty bonus for 2011 – even though he admitted the bank’s performance was “unacceptable” – prompted a shareholder protest.
The fines levied by global regulators – including the largest-ever penalty imposed by the UK’s Financial Services Authority – are even more serious. Emails showing traders’ casual attempts to manipulate interbank borrowing rates reinforce the widespread public perception of banks as venal and immoral. Worse, the misdemeanours took place at Barclays Capital, the investment banking unit Diamond built up and oversaw until he took the top job at the bank in 2010. It is hard to reconcile such behaviour with his famous rule that the bank has no place for employees who behave like “jerks”.
On their own, the fines do not constitute a hanging offence. Other banks are also under investigation over alleged manipulations and could yet face even bigger financial penalties. In time, Barclays’ decision to co-operate with the probe and seek an early settlement may look prudent. But in the context of past missteps, Diamond’s credibility with regulators, politicians, customers and investors is so low the board should replace him.
Diamond is a charismatic leader who built a global investment bank almost from scratch. Partly as a result of his efforts, Barclays was able to avoid accepting government capital in 2008. But the crisis has altered banks’ position in society, while regulation is changing the industry’s scale and focus. Diamond’s leadership skills, while valuable during the boom, are less well suited to a period of retrenchment.
Replacing Diamond will not be easy. Any new CEO would need clout with regulators and politicians, as well as a deep understanding of investment banking, which still accounts for half Barclays’ pre-tax profit and two-thirds of its assets. But there are credible candidates: former JPMorgan investment banking co-head Bill Winters is one. Naguib Kheraj, the ex-Barclays finance director and former CEO of JPMorgan Cazenove, is another.
Barclays’ board and its chairman, Marcus Agius, have so far shown little sign of reining in Diamond: they only scaled back his bonus when shareholders threatened a full-scale revolt. The latest setback – and the subsequent 15 percent drop in Barclays’ share price on June 28 – is a good moment to examine whether Diamond is still the asset to Barclays he once was. On balance, the answer is no.