When King bazooka’d the Barclays boardroom, however, he also knocked out the government’s Vickers tank parked on his regulatory lawn
When Bob Diamond sought to drag the Bank of England into Liborgate, it was time for Mervyn King to go big-game hunting, with his big bazooka. Diamond had sought to use, or misuse, a telecon with Tucker of the BoE at the height of the 2008 crisis as the excuse to fiddle LIBOR to the bank’s advantage for the next four years, but at its customers’ cost.
When King bazooka’d the Barclays boardroom, however, he also knocked out the government’s Vickers tank parked on his regulatory lawn.
Let me explain. The Vickers Report adjured that commercial banks should be ringfenced from the investment banks, separating the cookhouse of everyday banking from the casino of night-time gambling, but that they could still have common ownership as well. (I have to confess I had argued for just such an outcome in Countdown to Catastrophe, so I had a bit of a wake-up call too.) L’Affaire Barclays, however, shows exactly why this solution is no longer a solution at all.
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First, a little piece of history: Barclays Capital, originally BZW, was cobbled together after Big Bang as the new breed of investment bankers, many of them arrivistes from America such as Bob Diamond and friends, hungrily eyed all those deposits in commercial banks as a pool of leverage for their exploitation in the emerging casino banks.
In the US, you see, they were prevented from doing this by the 1933 Glass-Steagall Act, which had no equivalent here in the UK, so they all flocked to the City.
Barclays under Bob Varley decided in 2007 to bid for another cookhouse called ABN-AMRO, a real alphabet soup of a dysfunctional bank which had not even concluded integrating its own much earlier merger. This triggered Bob Diamond to bid for Lehman Bros – anything you can do, I can do better – setting up potentially two of the most disastrous banking deals ever promoted.
Varley/Diamond’s Barclays was saved from certain extinction when Sir Shredded Wheat of RBS outbid Varley and promptly went bust instead, just as the FSA stopped the acquisition of Lehman, which also promptly and conveniently went bust too.
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Then Diamond made the obvious get-ahead move by buying Lehman’s assets and business out of bankruptcy for a low-ball price, covered mainly by the value of the Lehman’s tower in NYC.
This meant that Diamond’s casino was now bigger than Varley’s cookhouse, and when Varley retired hurt, the Barclays board of suits voted Diamond in as group CEO, who promptly made his sidekick Jerry del Missier group COO as well, thus importing the head of the casino into the cookhouse. You now see the strategic faultline in the Vickers plan design, so illuminatingly shown up by Merv’s threat.
As group CEO, Diamond promptly announced impossible returns on the group’s equity as he strove to drive the cookhouse at the same speed as the casino. Result: miss-selling of mortgage insurance cover, PPI cover, interest swaps to small businesses, and now wholesale manipulation of LIBOR to fleece all the bank’s borrowers.
You can see the problem, and the answer, namely a total split of the cookhouse and casino banks. And what’s good for Barclays is also good for the UK-taxpayer’s bailed-out banks, Lloyds-HBOS and RBS, also cobbled together by mad corporate egos in the Noughties. But more on that next week.
Meanwhile, the Barclays fleet of unlikely acquisitions sails backwards under its admiral, Marcus Agius, going nowhere fast: Marcus fell on his sword to save Captain Diamond in an act of premature emasculation. Diamond was shot dead the next day by Merv’s bazooka, which then sliced through and killed Bob’s first mate del Missier as well.
So, Merv had to pick Marcus up, re-embowel him (a messy business) and order him to stand in as captain and up to any more incoming fire. Barclays, you see, with a would-be suicide as captain and no CEO and no COO, is decidedly in play, and all the other casino bankers in the City and on Wall Street will be polishing their slide rules and plotting further profitable destruction.
No wonder British industry is left to stagger on without any help from its busted banks. As I say so often these days, you couldn’t make it up if you tried!
