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Back to the future

13 October 2015 By George Hay

Barclays is reverting back to what it does best – giving the UK regulator a headache. The UK bank is near to appointing ex-JPMorgan investment bank boss Jes Staley as its new chief executive, according to a person familiar with the situation. But the Prudential Regulation Authority, part of the Bank of England, has the last word. Given the recent history of Barclays’ relations with its regulators, approval may not be a foregone conclusion.

The bad blood mainly originates from the 2008 financial crisis. Barclays spurned government help, instead raising capital from the Middle East in ways which eventually provoked a probe by the UK’s Serious Fraud Office. A few years later Barclays turned out to be a leader in fiddling Libor. That scandal pushed the regulator to ease out the bank’s chief executive, Bob Diamond. The hard-charging American investment banker was replaced by British retail banker Antony Jenkins.

Staley’s record suggests he ticks the wrong regulatory boxes. He has little experience in one of Barclays’ core businesses, retail banking. And he is associated with rapid revenue growth in high-risk investment banking. Under his leadership, JPMorgan increased market share in the business from 10 percent to 14 percent in three years. In contrast, Barclays has cut risk-weighted assets by over 40 percent to satisfy new leverage regulations.

The BoE could just say no. But Jenkins, who left in July, caused a different sort of regulatory concern. His retail experience left him unprepared to deal with investment banking, which still accounts for 36 percent of Barclays’ risk-weighted assets. Besides, if Staley gets the gig he is likely to stick with plans to turn the old Barclays Capital into a more focused advisory and execution outfit, according to a person familiar with the situation. The BoE will know that one way to make Barclays secure is to let it make money.

Still, if the BoE as expected allows the detail of new ring-fencing legislation to be relatively easy on the banks, allowing its most unruly charge to appoint a “casino banker” will represent a double concession. The BoE may OK Staley – but only through gritted teeth.

 

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