In an unexpected move Barclay’s Board of Directors sacked its Chief Executive Officer Anthony Jenkins in July 2015.
The questions on everybody’s lips are why has this happened and what does this mean for the future of British banking?
Barclays appear to have had the enviable ability of being able to generate huge profits seemingly out of thin air. Prior to the International economic collapse, and even thereafter, Barclays’ CEO Bob Diamond was taking home an annual salary and bonus package
worth between £20 million and £60 million a year. Bob Diamond like his erstwhile counterpart at RBS, Fred Goodwin, had realised early on the huge profits that could be made by allowing the investment bank to participate in trading with excessive risks associated.
This paid off in billions of pounds of turnover every year. Unfortunately, this also led to the realisation that complex financial products could be sold to unwary customers, leading to many SMEs in the UK being sold interest rate swaps and its retail customers
being sold PPI.
Barclays has always remained a private company until international rules forced it to be more open with its information following the crash. It used to make its directors salaries and bonuses difficult to ascertain in the content of their annual reports. Only
seasoned economists were able to pull together the financial information from the annual reports to work out that Mr Diamond was being paid up to £60m a year.
However, following the fallout from interest rate swap, PPI and the LIBOR manipulation scandals Bob Diamond had no option but to stand down. Anthony Jenkins stepped in and promised that the bad behaviour of the past was gone. He was clearly unaware that his
traders continued to manipulate a number of markets after he made this statement (see berg’s 2015 Banking Report "Lifting the Lid”: https://www.berg.co.uk/banking-report-2015.aspx.)
The investment bank can (and will) make billions of pounds of profit for Barclays. The question therefore has to be a balance between the “casino” banking of the early 2000s, or the more sedate but sensible operations envisioned by Mr Jenkins. This is a difficult
question because the banks are now under a requirement to separate their retail banking away from their investment banking. This is referred to as ring fencing. Ring fencing has caused a number of dilemmas for banks. London is, and has been for a long time,
the world centre for finance. The costs of removing investment banks are going to be hundreds of millions, and in some cases billions, to implement and pursue. HSBC has been very public in stating that it is now actively considering leaving the UK to avoid
these and related costs.
It was well-known that Anthony Jenkins was not fan of the investment banking golden era. Mr Jenkins has a history in retail banking. The difference in approach was felt right across Barclays following Mr Jenkins taking over in 2012. He has been implementing
proposals to reduce the investment bank presence at Barclays. We are advised that the fall-out eventually came because Anthony Jenkins wanted a much more significant reduction in the investment bank than the investment bank’s chief executive wanted. Reuters
has reported that the ultimate sacking of Anthony Jenkins came when Tom King and Tushar Morzaria (the investment bank boss and FD, respectively) agreed to cut more assets at the investment bank but Mr Jenkins demanded that they increased the scale of cut.
Mr King threatened to retire early if Mr Jenkins pursued his costs reduction plan at the investment bank. The question was therefore put to the board and Mr Jenkins was quietly asked to leave his position.
The board is known to favour the investment bank, and this decision puts a marker in the sand as to how Barclays intends to develop over the coming years. However, the removal of Mr Jenkins was expected. He reportedly received a settlement of £22m.
What will this mean?
The new ring fencing rules together with the increased taxation on banks is likely to see more banking institutions considering a move back to the United States or into Singapore. However, they are so entrenched in the UK that threats to leave the UK may simply
be just insubstantial and never actioned. Over the coming months we are likely to see most of the large UK banks with large investment bank arms deciding whether they want the old banking regime or whether they will agree to the costly new ring fenced approach.
(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this article.)