Taxpayers deserve better than they got from the Commons Committee examination earlier this week
There was much asking of sanctimonious questions of Barclays’ chief Bob Diamond by the Parliamentary Committee earlier this week. But the dual-nationality Anglo-American boss sailed through without so much as a dent in his formidable armour.
The Committee’s failure to discomfort Mr Diamond borders on dereliction of duty, and points up yet again how lightweight, sloppy and ill-prepared our legislators tend to be.
There are only three sensible questions to ask about Bod Diamond: does his past judgement suggest he should be in charge of a bank with a large retail division? Is the picture of himself he presents today truthful? And is he a man you could trust in business?
Bob Diamond – saviour or spin-merchant?
Diamond’s PR’d image is very much one of an old head who kept his head, and ensured Barclays avoided having to go cap in hand to anyone during the 2008 crisis. His judgement at critical moments, we are told, is faultless.
The facts do not support this view.
One myth is that he wisely gave up on ABN Amro, and watched with glee as RBS came to grief in buying it. But in September 2007, the then boss of the bank’s investment arm Barcap told a conference:
“…the RBS price will probably beat ours, but there are a lot of ifs between now and then. We have to take into context that the market environment has changed. Do we still want ABN? Yes.”
Diamond lost ABN Amro because his share-price fell. With more money, he would’ve gone for it. Not great judgement given the crock the Dutch bank turned out to be.
While he is also seen as the bold raider who captured Lehman Brothers investment division (now folded into Barcap) it’s clear that he didn’t do enough due diligence before buying it.
At the 2010 Manhattan inquiry into the acquisition, several Barcap executives testified that Barclays Plc had no real idea how big Lehman Brothers Holdings Inc.’s futures-and-options trading business was. In particular, Elizabeth James, a director of Barclays’ futures business, described Lehman’s books as “a mess”.
She said she received an e-mail from former Barclays trading executive Stephen King saying Lehman had “absolutely no idea” if it had sold $2 billion more options than it had bought, or whether it owned $4 billion more than it had sold.
Before the credit crunch hit, Bob Diamond wasn’t exactly a soothsayer about the outlook. He told investors in September 2007 that the investment banking division was weathering the turbulence in financial markets, and that year’s profits were beating 2006.
“…I find it amazing there is any question about the ability of a bank the size and quality of Barclays to fund itself,” he told a conference in New York.
Well, amazing or not, in December 2008 the bank was forced to go cap in hand to the Arabs, raising £7.3bn from investors in Qatar and Abu Dhabi at a ‘real’ interest rate cost of 16%. In fact, Barclays was desperate: it had already lost billions of pounds from credit-related asset writedowns, and despite Diamond’s airy assurances of the previous year, the bank was faced with a sharply slowing UK housing market and economy. In July of that year, it had already raised £4.5bn from shareholders to prop up its capital base.
Can we trust what Bob Diamond says?
Bob’s assertion this week that Barclays had never needed bailing out is thus at variance with reality. But his specific claim that the bank has “never taken taxpayer money” simply isn’t true.
During the US salvage job on AIG, Barclays received about £6bn, or the equivalent of the whole of the British bank’s profits for the previous year. (We wouldn’t know this at all if AIG hadn’t been forced by Congressional pressure to identify the banks to which it had paid bail-out money from its £106bn US taxpayer-supplied fund.)
On the whole question of bailouts and using taxpayers’ money, in fact, Mr Diamond is singing a different tune these days. Back in Spetember 2007, he urged the Bank of England to intervene in the money markets, telling the Daily Telegraph that short-term liquidity in the money markets remained the biggest problem for the global financial system and said it was “down to central banks to restore stability”. Not, mind you, down to the banks whose distrust of each other had caused the liquidity constipation in the first place. ‘Central Bank’ is merely another way of saying ‘Exchequer’, which in turn means ‘us’…the sluch-fund of first resort, the taxpayer.
Is he a man you could trust in business?
But if Bob Diamond’s memory isn’t always accurate in his media utterances, his modus operandi in business sometimes give people the odd doubt here and there.
He spent a fair amount of last summer in Manhattan, answering charges brought by Lehman that he had duped the firm during his acquisition of it. Although acquiring the investment division for a knockdown $1.7 billion, Lehman sued demanding $11 billion more.
The full Court Case proceedings can be viewed for anyone interested in the minutiae; but the following is a telling excerpt from the charges:
‘…. it appears that assumed liabilities were significantly overstated or inaccurate and, further, that Barclays may not have actually paid these obligations.’
Lehman further accused Barclays of taking a $5 billion “secret” profit on a portfolio of securities it acquired with the brokerage, and of making another $6 billion by writing up business assets, skimping on promised payments and “grabbing” more financial assets belonging to Lehman.
Ironically, the skimping on promised payments related mainly to…..the payment of Lehman staff bonuses.
During the trial, Diamond repeatedly refused to give “yes” or “no” answers to questions, prompting a rebuke from judge James Peck, who told him that he was “coming across as evasive”. The judge advised Lehman’s lawyer: “This is a witness that needs to have the leash held tight.”
The case was an important one, not least because as a result of the knockdown, taxpayer-assisted price paid for the Lehman rump, Barcap turned itself into a powerhouse in the investment banking world. Without that arm today, in fact, the man who engineered the deal might not be so smug about ‘not needing’ taxpayer monies. ‘Good for him’ many people would say – but it’s not quite as simple as that.
Bob Diamond is now CEO of the whole shooting match. Retail banking cannot be subjected to the same cavalier style of management – not with the amount of ordinary depositors’ money that such banks use. If institutions, multinationals and billionaires want to risk ruination in that sector, its their concern and they must get on with it. But exposing Wayne and Bianca Nuttall to stuff they know nothing about is not on. When it comes to a Barclays run by the likes of Mr Diamond, one is forced to consider whether Vince Cable isn’t absolutely right to demand that Glass-Steagall rules be revived in order to shield Mr & Mrs Average from investment punts.
Certainly, Diamond’s protestations of not wanting to bankrupt the taxpayer ring extremely hollow. Former colleagues are unanimous in pointing out that his motive in this regard is avoidance of regulation, not concern for the taxpayer. The facts of his past tend to support that contention. For example – as The Times reported at the time – ‘‘Because Lehman in the US is now operating under Chapter 11 bankruptcy protection, Barclays has been able to strip the business of the toxic real estate-related assets, which will remain
with the holding company.’ Once again, ‘holding company’ is code for ‘us’: they cherry-pick the nice bits, we get the useless, smelly byproducts.
Far from caring for ordinary people, observers and those close to Bob Diamond describe a man straight out of the banker mould: supremely self-confident, certain of his judgement – and dismissive of the proles. As summarised in a recent US analysis,
‘‘He’s arrogant….contemptuous of “ordinary” people. He comes across with a ruthless streak.’
And – as we’ve seen – little or nothing he says can be taken at face value. For instance, the spin that he waived his bonus last year (2009) omits to mention that he received a £26million payout from the sale of Barclays Global Investors, the bank’s fund management arm, to U.S. firm BlackRock.
Even here, in fact, there is evidence of the very small elite pond in which Bob Diamond likes to swim. Before joining Barclays, he was at First Boston. The CEO and founder of Blackrock, Larry Fink, was a contemporary of Diamond’s at….First Boston.
At the Barcap annual seminar in 2009, Bob Diamond rose to speak, and uttered these words:
‘‘The partnership of Barclays Capital will perpetuate a culture that is based on putting clients at the centre of what we do. It is based on focusing and execution, but mostly it’s a meritocracy and behavior. How we behave matters. We really do have a no-jerk policy.”
Readers must decide for themselves whether the man in charge lives up to the corporate standards he has set for his staff.
Footnote: Of all those receiving taxpayer funds during the AIG meltdown,
Goldman Sachs, whose former executive hank Paulson was Treasury secretary at the time, was the single largest recipient of funds from AIG with $13 billion. The Goldman Sachs bonus pool this year – when its profits were down 40% – was…..£13 billion.