Barclays’ troubles and Bob Diamond’s resignation have not come as a surprise to experienced London bank-watchers. They have been brewing for years and came to a head last week when the LIBOR-fixing scandal broke. It was very clear which bank Sir Mervyn King had at the front of his mind when he called for leadership of an unusually high order and changes to the structure of the industry. He then went on to blast the banks for ‘excessive levels of compensation, shoddy treatment of customers, deceitful manipulation of one of the most important interest rates and… yet another mis-selling scandal’.
The gloves were clearly off and by the weekend it seemed only a matter of time before Mr Diamond would go. This morning’s splash story in the Financial Times with the headline ‘Diamond threatens to hit back’ at the Bank of England put his demise beyond any doubt. Diamond had resigned before most people had read the FT.
Barclays should immediately split itself into two separate banks with their own, independent CEOs and float each on the stock market as soon as possible. This is the best possible way for the bank to get ahead of recent disastrous events and regain the initiative with the public, politicians, regulators, competitors and markets in general. Ideally, both new CEOs should be recruited from outside Barclays, perhaps from Canada, Australia or South Africa – countries where the reputation of banks has not been damaged in the way it has been in Europe and the US.
The worst possible outcome would be to put another investment banker in charge of the unified banking group. This is because the often cut-throat culture and practices of the securities industry (nowadays referred to as investment banking) do not serve society well, are seriously damaging to the service culture of retail banking and have undoubtedly contributed to the host of mis-selling scandals that has plagued banking in the UK and many other countries in the past 20 years.
Without doubt, the clients of Barclays and many other banks have suffered great damage from the culture of investment banking as it is practised within universal banks. The time to rebuild post Glass-Steagall banking has now arrived. It cannot be done within what Sir John Vickers calls the current under-capitalised, over-leveraged, taxpayer-supported universal banks. It needs to be about structure, ethics, the provision of products and services that benefit society, and the elimination of all forms of corruption, decadence, and greed at the expense of customers.
In due course, stand-alone investment banks will re-emerge. In London, we might even see the return of great names from the past like Warburg, Schroders, Morgan Grenfell and Hambros.
Michael Lafferty, Chairman, Lafferty Group
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.
Do you know more about this story? Contact us anonymously through this link.
Michael Lafferty founded Lafferty Group in 1981 when he left the Financial Times, where he had been responsible for coverage of the banking industry. He had previously worked on the paper’s LEX team, the City Desk and been accountancy correspondent.