Diamond's Promotion Shows U.K. Banks May Escape Breakups
Robert "Bob" Diamond CEO of Barclays Plc.
Chris Ratcliffe/Bloomberg
Robert "Bob" Diamond, president and incoming chief executive officer of Barclays Plc.
Robert "Bob" Diamond, president and incoming chief executive officer of Barclays Plc. Photographer: Chris Ratcliffe/Bloomberg
Sept. 8 (Bloomberg) -- Christopher Wheeler, an analyst at Mediobanca SpA, talks about the outlook for European banks. He speaks on Bloomberg Television's "On The Move" with Francine Lacqua. (Source: Bloomberg)
Barclays Plc’s appointment of Robert Diamond as chief executive officer shows the bank expects the government won’t force it to separate its commercial and investment banking divisions, analysts said.
Diamond, 59, once described as the “unacceptable face” of banking by then-U.K. Business Secretary Peter Mandelson for the size of his compensation, will take over from John Varley, 54, at the end of March.
“Diamond’s appointment shows how confident Barclays are that they are through the worst of it in terms of regulatory surprises,” said Christopher Wheeler, an analyst at Mediobanca SpA. “They must be pretty confident that they aren’t going to get broken up or they wouldn’t have appointed Diamond.”
Britain’s third-biggest bank is putting an investment banker in charge as Chancellor of the Exchequer George Osborne faces pressure from his Liberal Democrat coalition partners to split firms’ retail and investment banking operations, as was proposed under the Volcker rule in the U.S. In June, Osborne put former Bank of England Chief Economist John Vickers in charge of a commission to review the industry’s structure.
The decision to give Diamond the CEO post illustrates “the wider policy question about how our banks can be made safe,” Business Secretary Vince Cable told the BBC’s Today Programme. “We are worried about this combination of casinos and traditional banking and the banking commission will be coming up with some strong conclusions on that.”
HSBC Chairman
Diamond’s selection is “completely a matter for the board of the bank,” Steve Field, spokesman for Prime Minister David Cameron, told reporters yesterday.
Separately, HSBC Holdings Plc’s chairman, Stephen Green, said yesterday he would step down to become the government’s trade minister. Europe’s biggest bank plans to name a successor by the end of the year, the firm said in a statement.
Both CEO Michael Geoghegan and former Goldman Sachs partner John Thornton, an HSBC director, are candidates to replace him, said Colin Mclean, who manages 650 million pounds ($999 million) at SVM Asset Management in Edinburgh, including HSBC shares.
“Bankers are not as hated as they were 12 months ago,” said Alan Beaney, who helps manage about 200 million pounds, including HSBC and Barclays stock at R.C. Brown Investment Management in Bristol, England. “Back then the politicians would not have allowed Green into government and they would have created a great stink over Diamond. It shows the changing situation.”
Investment Bank’s Growth
The son of a school principal, Diamond was born in Concord, Massachusetts. After missing out on the top job to Varley in 2003, he led Barclays’s purchase of Lehman Brothers Holdings Inc.’s U.S. operations in 2008. He has since expanded the investment bank’s operations in Europe and Asia, boosting the unit’s revenue to 11.6 billion pounds last year, up from 5.2 billion pounds in 2008. Barclays Capital has driven the bank’s earnings since 2000, generating about two-thirds of Barclays’s pretax profit in the first half of 2010.
“The choice of Diamond sends a very strong signal that Barclays is going to be a predominantly investment banking business going forward,” said Ralph Silva, a strategist at London-based Silva Research Network, which provides research to financial companies.
Diamond, speaking on a conference call with reporters yesterday, said “there’s no change in strategy here” and pledged to boost the lender’s consumer division.
Salary, Bonuses
As part of its review, the government is also seeking to pressure firms to limit compensation to top traders and executives as it implements the deepest cuts in public spending since World War II. The previous administration led by Gordon Brown already imposed a one-time 50 percent tax on discretionary bonuses above 25,000 pounds, while Osborne plans to raise more than 2 billion pounds from a levy on bank balance sheets.
Diamond will receive as much as 11.48 million pounds in salary and bonuses as CEO. He has long made more money than Varley, making him a target for critics of banker pay. Both men declined bonuses in 2008 and 2009, while Diamond received a 26.8 million-pound gain on the sale of shares in Barclays Global Investors. In 2007, Diamond made almost 20 million pounds in salary and bonus, while Varley made 3 million pounds.
Mandelson used an April 3 interview with the Times of London to attack Diamond’s pay, saying he hadn’t built a business and hadn’t earned the money. Most comment on Diamond’s pay is “wrong,” the bank said later that month.
‘What If’ Question
Both banks have said they would consider moving their operations out of London if the government commission forced them to break up their operations. Stuart Gulliver, HSBC’s chairman of Europe, Middle East and Global Businesses, said on Sept. 2 that it would be “very regrettable” if the bank had to move its headquarters from the U.K. because of a forced breakup. Varley said yesterday Barclays would also consider moving if the commission called for a split.
“We believe that our natural headquarters, our natural locus, is here in the United Kingdom, but of course we have to ask the ‘What if’ question,” Varley told reporters. “It would be irresponsible of the board not to do that.”
Were the government to pursue a breakup of the banks, Barclays would consider moving its investment banking operations to New York and selling the consumer operations, according to Jonathan Newman, an analyst at Brewin Dolphin Holdings Plc in London.
“They could say to the U.K. government that they have created a nice-old retail bank, while the Barclays Capital entity is in New York doing investment banking,” he said. Diamond’s appointment “is a step in that direction.”
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Ambereen Choudhury in London achoudhury@bloomberg.net
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