The time for remorse and apology is over, Bob Diamond, Barclays chief executive at the time, famously told a parliamentary committee in 2011. It was a premature claim that probably played a part in his departure the following year. But the ritual slaughter of his conservative successor, Antony Jenkins, and Barclays’ apparent search for a more aggressive leader, suggests that the banks are finally moving on.
This chimes with the recent suggestion by George Osborne, chancellor of the exchequer, that, having been part of the problem, banks now need to be part of the solution. If so, banks would be well advised to proceed with caution and none more so than Barclays.
The intervention of Barclays’ board in forcing the departure of the bank’s chief executive is a bold step at a time when the British regulators’ senior managers regime opens the prospect of jail time for reckless mismanagement of a financial institution. Running a bank is not exactly a walk in the park. Governance needs to cover strategy, the day-to-day running of the business, conduct and prudential risk to name just a few of the things likely to appear on board agendas.
A lot of these issues are complex, technical and require a detailed knowledge of banking. The board and the executive chairman will no doubt be extra vigilant while the search for a new chief executive is under way.
The search itself comes at a difficult moment for Barclays, which faces the strategic issue of what to do with investment banking at a time of flux in that industry and the operational issue of retooling its retail bank to adjust to the world of mobile banking. Neither is straightforward from where the bank is currently positioned.
The investment bank still resembles the bank that Bob built at a time when full service investment banking was all the rage. Diamond’s opportunistic acquisition of the Lehman equities and corporate finance businesses to round out the fixed income oriented Barclays Capital division put the bank into Wall Street’s big league at a time when competitors were struggling. It was a brilliant coup and it could still prove to be the right model. But banks such as UBS have developed a leaner, less capital intensive style of investment banking, shrinking the product range and the balance sheet and this offers an alternative for Barclays. Deciding which way to go and moving from one to the other runs the risk of being caught in the middle and even if well executed could incur heavy restructuring costs.
Barclays’ retail bank combines elements of the old and new worlds of high street banking. It is branch heavy yet has some smart mobile technology. Customers are switching rapidly from the former to the latter and all of the major banks, including Barclays, need to reappraise the size and function of their branch networks. To complicate matters, the retail bank will need to be ringfenced from the rest of the group by 2019, raising difficult governance and control issues. Meanwhile, Britain’s competition authorities will be reporting on the personal current account market next year, opening up the possibility of structural change to the conventional “free if in credit” banking model.
The next 12 months looks like proving to be a crucial year for Barclays. Get it right and the bank will be a powerhouse that leads the way in banking reconstruction. Get it wrong, and it would be a ripe candidate for break up. The last time Barclays resorted to the expedient of an executive chairman was in 1998 when Sir Peter Middleton took over after Martin Taylor unexpectedly resigned as chief executive. The solution then was to bring in a heavyweight North American banker, Matthew Barrett. It would be no surprise if the head hunters leading the search this time looked in the same direction.