On the face of it, the abrupt departure this week of Jes Staley, the chief executive of Barclays, is a familiar City story. Hubris, miscommunication and weak governance led to the fall of a high-flying executive, a plot followed many times before. In Staley’s case, there is the added drama of the nature of his demise: an argument with regulators over how he characterised his relationship with the disgraced American financier Jeffrey Epstein.
There are intriguing sub-plots, too. What did Staley tell the Barclays board? How much personal credibility did Nigel Higgins, Barclays’ chairman, put on the line to defend him? Might regulators have harboured a grudge from an earlier brush with the Barclays chief executive over his attempt to unmask a whistleblower?
With a wealth of gory detail in which to revel, it is easy to miss the deeper issue that the Staley debacle reveals. It is familiar to long-term followers of Barclays and has a much wider relevance, going to the heart of attitudes towards the Square Mile. The conundrum is whether Britain needs, or wants, a British institution that competes at Wall Street’s game of full-on investment banking. Or are we at heart uncomfortable with the idea and willing to give up a British-controlled conduit to global financial markets because of a deeper revulsion at what Lord Turner of Ecchinswell, the former boss of the Financial Services Authority, dubbed “socially useless” activities?
It is a question with roots in Margaret Thatcher’s deregulation of the City in the 1980s. Rules that prevented too many market functions sitting in one institution were scrapped. Barclays had a plan, buying the stockbroker De Zoete & Bevan and the jobbing firm Wedd Durlacher to create a prototype investment bank. The Square Mile was going to become more like Wall Street and Barclays wanted to be ready for an invasion from across the Atlantic.
Goldman Sachs, JP Morgan and the rest did invade and the ensuing battle was one-sided. Only Barclays and the Royal Bank of Scotland put together investment banking operations capable of taking on the big players on Wall Street. There was always, despite the undoubted success of City deregulation, a level of distrust and disquiet among politicians and regulators at the size of the two British banks’ ambition. The advent of giant bonuses did not help.
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RBS imploded in 2008 in the banking crisis. Barclays seized the opportunity to double-down at the “casino”, buying what remained of Lehman Brothers, the New York investment bank. It had to escape the wider banking turmoil and the Labour government was eager for Barclays, like Lloyds and RBS, to accept a bailout and stop the rot. This would have meant the end of its investment banking ambitions. In his excellent book The Bank that Lived a Little, the City historian Sir Philip Augar sums up the attitude of John Varley, then Barclays’ chief executive: “Nothing he had heard around the table suggested to him that the authorities would be supportive of a British bank with universal banking ambitions . . . keeping them [the government] off the shareholders’ register was essential.”
The bank stayed out of Whitehall’s clutches by raising money in the Middle East, a move that came back to haunt it. But Varley had achieved his goal: Barclays hung on to the investment bank. There is a direct line from that decision to the appointment of Staley. Barclays’ cheerleader-in-chief for investment banking, the American Bob Diamond, who took over from Varley as chief executive, was forced to stand down in 2012 over the Libor scandal. His replacement was Antony Jenkins, a cerebral Brit more attuned to retail banking. It was a battlefield promotion that did not last the peace. Jenkins, accused of neglecting the investment bank and dogged by poor results, was pushed out in 2015. The Barclays board could have had their pick of British executives, but chose instead another American.
Barclays’ supporters would argue that this prioritisation of the investment bank is not just about its commercial interests. A wider national purpose is served. It cannot be right, they would say, that the UK relinquishes command of global capital markets to five big US banks. This would leave the government and British companies dependent on foreign institutions and at the whim of foreign regulators. Refinitiv’s annual league table of global debt issuance puts Barclays in fourth place behind JP Morgan, Citi and Bank of America. It is the only non-US bank in the top five, with even the mighty HSBC traipsing in at No 9. Fail to support Barclays now, the argument goes, and you will regret it.
Any attempt to drape a company in the flag should, however, be treated with suspicion and this argument stretches the definition of a strategically important company to breaking point. As Varley rightly decided during the banking crisis, ministers have little appetite to intervene to protect highly paid traders. If ports, energy providers and water companies have been sold to foreign bidders, there is unlikely to be an outcry to save a Wall Street trading floor.
The acid test would come if Barclays found itself trying to repel an unwelcome bidder: something that cannot be entirely ruled out, given its laggard share price. The shares are just over 190p, roughly half its book value and a long way off the all-time high of 710p.
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If a bidder did emerge, might the Barclays board find some support from government, even if only in the subtle way ministers shuffled behind AstraZeneca when Pfizer came calling in 2014? They would be wrong to count on it.
Dominic O’Connell is business presenter for Times Radio
