McGee's Exit From Barclays Shows Lehman Legacy Fading Away
Hugh “Skip” McGee isn’t just the head of a British bank’s Americas division. He is one of its most lavishly paid officials and the only Lehman Brothers Holdings Inc. alumnus on the executive committee.
When Barclays Plc (BARC) announced yesterday that McGee is stepping down from that role at the end of the month, it meant the London-based firm will lose a banker seen by U.S. colleagues as their advocate for risk, pay and aggressiveness.
His departure is another step away from a pre-crisis Lehman culture whose competitiveness was written into the firm’s code of ethics. Almost six years after Barclays bought parts of the company, which filed the biggest bankruptcy in history, and following its own scandals from interest-rate rigging to selling insurance customers didn’t need, the lender is cutting jobs, rebuilding relationships with regulators and facing shareholder pressure to curb bonuses.
“Barclays has to have its own identity and has to do its own thing, and I think it’s evolving to that now,” said American International Group Inc. General Counsel Tom Russo, a former Lehman vice-chairman. “I think it’s becoming extraordinarily cost-conscious. It’s shrinking a bit.”
McGee, 54, said in an e-mailed statement that he’s leaving because the job has changed.
“My focus has always been on clients, but given the need for Barclays leadership to focus on regulatory issues for the foreseeable future, I have decided that it is time for me to move on to new challenges,” he said.
Barclays said that it’s making changes as the 2010 Dodd-Frank Act, passed by Congress after Lehman’s collapse, requires it to comply with the same regulations and capital rules as domestic lenders, forcing executives to concentrate on compliance.
The bank will move its commodities division into a so-called bad bank of unwanted assets and units to be overseen by Eric Bommensath, according to a person familiar with the plan. Tom King, who serves as co-head of the corporate and investment bank with Bommensath, will become its sole leader, said the person, who asked not to be identified because the change hasn’t been announced.
McGee had sought the job that’s going to King, according to two colleagues who also requested anonymity.
Pay also has been a concern for McGee, one of them said.
McGee’s 8.87 million-pound ($14.9 million) stock bonus, disclosed in March, was the highest for any executive at Barclays. Chief Executive Officer Antony Jenkins, a former retail banker who has pledged to shrink compensation, got shares valued at 3.82 million pounds.
The firm’s U.S. investment bankers don’t like the pressure to whittle away at pay, the colleague said. They are facing new European Union rules that will prohibit the firm from giving bonuses more than twice their basic salaries.
McGee helped keep some bankers on the oil and gas team who were upset about compensation and regulatory scrutiny, Bloomberg News reported in August.
“At the end of the day, Barclays’s investment bank is viewed as being in a mess,” said Jason Kennedy, chief executive officer of London-based recruitment firm Kennedy Group. “Bankers in the U.S. won’t be staying out of loyalty, it will be out of necessity. There will be more to come in term of exits.”
McGee, a Texan who started at Lehman in 1993 and rose to head its investment bank, worked on an acquisition for Exxon Mobil Corp. (XOM), the world’s second-biggest company by market value, and the 2007 acquisition of the former TXU Corp., the largest leveraged buyout ever. TXU, now Energy Future Holdings Corp., filed for bankruptcy yesterday.
A report about Lehman by court-appointed bankruptcy examiner Anton Valukas said that McGee had pushed to take on more risk in 2006 and 2007 before the firm’s collapse. He and CEO Richard Fuld advocated loosened controls over objections by senior executives, according to the report.
Still, some analysts see McGee’s departure as detrimental to Barclays’s U.S. business, which remains a key driver of the firm’s advisory and equity underwriting revenue. The firm ranked among the top five underwriters of U.S. stock sales in 2012 and 2013, and third among firms that advise on U.S. mergers, according to data compiled by Bloomberg. It’s seventh in stock underwriting and fourth in merger advice in the U.S. this year.
While the bank has expanded beyond its fixed-income roots in Europe since acquiring Lehman, it is still a laggard in the region. Barclays ranks 12th in underwriting European stock sales this year, down from ninth last year and ranks 16th among merger advisers involving European companies this year, the data show.
McGee’s departure “will be bad given the strategic importance of the U.S. business but it will be a slow drag,” said Chirantan Barua, an analyst at Sanford C. Bernstein in London.
McGee will be replaced by Joe Gold, global head of client capital management, the firm said. The former Lehman banker is leaving as Jenkins, 52, prepares to outline his strategy for the investment bank on May 8. A review the bank commissioned found its culture veered into arrogance, greed and ethical ambiguity.
Brian Korn, a securities lawyer in New York for Pepper Hamilton LLP who worked on banking compliance at Barclays until 2012, said McGee understands what it takes to thrive in banking.
“Skip and others very much believed that you pay people who are valuable to you, and it will reap benefits in the end,” he said. “You can’t build a world-class bank on the cheap.”
Fuld, he said, understood how his people should be paid.
Six years after Lehman’s collapse, Barclays also has to please shareholders, regulators and political leaders who find multimillion-dollar payouts to be excessive.
“The culture of Lehman and the culture of Barclays are at odds,” said Korn. “It’s a question of the refs taking over the game, and the game, at some point, is going to be unwatchable.”
To contact the reporter on this story: Max Abelson in New York at firstname.lastname@example.org