• Diamond says leverage rules have caused banks to cut back
  • Atlas Merchant made investment in South Street Securities

Robert Diamond, the former Barclays Plc chief executive officer who now leads Atlas Merchant Capital, said he sees an “incredible entrepreneurial opportunity” to invest in financial companies competing with so-called systemically important banks that are facing increasing regulator scrutiny.

In June, Atlas invested in South Street Securities Holdings Inc., a broker-dealer that specializes in some of the most basic areas of the fixed-income markets, including helping clients borrow and lend money in the securities repurchase markets, he said Tuesday in an interview on Bloomberg Television. Diamond also joined the company’s board.

“They do repo, U.S. Treasuries, mortgages, haircuts against cash -- it’s a pretty simple business,” Diamond said. “But most of the big banks in the U.S. and Europe are down 30, 40, 50, 60 percent in the amount of business that they do in repo with customers because of the regulatory bite of the leverage rules.”

U.S. banks scaled back some low-margin businesses after regulators proposed a leverage ratio that measured their capital against total assets. Goldman Sachs Group Inc., for instance, cut its so-called matched book of repo borrowing and lending by $42 billion in the first half of 2014 in response to the rules.

‘Dramatically Different’

Diamond, 64, said that some European banks are scaling back or exiting their U.S. businesses as a result of tougher capital rules.

“If you look at the levels of capital required for the foreign banks, they’re dramatically different from before the crisis,” he said. “If someone has a weak business proposition and there’s higher capital that probably means they would exit but I think there are people with a very strong business model that have to adjust to the much higher capital and much more stringent leverage rules.”

Barclays, which bought the U.S. business from Lehman Brothers Holdings Inc. after that firm’s 2008 bankruptcy filing, should stay in the U.S., he added. While helping steer the London-based bank through the financial crisis that forced competitors including UBS Group AG into bailouts, Diamond resigned in 2012 following a fine for rigging benchmark interest rates.

“One of the things that has certainly caught me by surprise is, two or three years ago and not just today, was the depth of the anger against banks and bankers,” he said. “The reality is that the depth of anger toward banks and bankers because of the financial crisis has been much deeper and it’s going to take some time to work out.”

European Challenges

The big European investment banks -- Barclays, Deutsche Bank AG, Credit Suisse Group AG and UBS -- earn about half of what their U.S. competitors make, Diamond said. Before the 2008 financial crisis, their earnings were roughly equal, he added. Bank of America Corp. and Citigroup Inc.’s recent earnings showed more progress in cutting costs than the Europeans are demonstrating, according to Diamond.

“It seems to me that the U.S. banks are doing probably a better job at getting at the costs right now,” Diamond said. “Certainly there are challenges for many of these new chief executives” at European lenders.

At Deutsche Bank, new co-CEO John Cryan probably has “cost and efficiency very, very high in his program,” Diamond said.

Since leaving Barclays, Diamond has helped drive an expansion of Atlas Mara Ltd. across Africa. The banking group is seeking two to three more transactions this year, he said.

“The opportunity is phenomenal,” Diamond said. “Africa is open for business, they want investment. Not many emerging economies with this potential allow foreign investment into banks and majority ownership.”

Atlas Mara shares have dropped about 41 percent this year.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE