Do we really need a big British investment bank? I ask the question because Jes Staley, the chief executive of Barclays, apparently believes we do – and he thinks that the City regulators are of the same mind.
One of the many battles Staley has been fighting is against activist investor Edward Bramson, who wants Barclays to scale back its investment banking arm. Staley, a Wall Streeter imported to Canary Wharf from JP Morgan, is determined to hold on to it.
Not only that, but he is also said to believe the regulators will back him, on the basis it would be bad for the country to lose our only remaining home-grown investment bank.
Ruth Sunderland says generations of bosses of Barclays have agonised over whether or not to split the retail bank from the much riskier ‘casino’ investment bank
Since the Big Bang opened up the Square Mile to overseas players in 1986, the investment banking scene has been dominated by the big boys from the US: Goldman Sachs, Morgan Stanley et al. It’s rather like Wimbledon –lovely when the top players happen to be British, but not essential.
The main thing is that Britain plays host, not the nationality of the participants.
There is a respectable argument that the UK needs an investment bank of its own to look after its interest when underwriting Government debt issues.
But generations of bosses of Barclays have agonised over whether or not to split the retail bank, which provides straightforward banking services to individuals and firms, from the much riskier ‘casino’ investment bank.
The bank has suffered almost from a split-personality, with the workaday UK operation on one side and the casino on the other.
Jes Staley, the chief executive of Barclays
The conflict between the two is reflected in the way the bank has swung to-and-fro in the selection of its chief executives: investment banker Staley follows Antony Jenkins from the retail side, who in turn came as an antidote to Bob Diamond.
But there is a larger point at stake. The financial crisis revealed how taxpayers could end up having to foot the bill for the antics of casino banks. For much of the 20th Century, this was not an issue because of post-Depression era rules brought in during the 1930s that meant investment banking and the humdrum high street variety had to be kept separate. That legislation was repealed in the late 1990s, and many observers see it as a major factor in the crisis.
As a consequence, we now have ‘ring-fencing’ where large operators such as Barclays are allowed to own investment and retail banks but have to quarantine them off from one another. The history of ‘ring-fences’ and ‘Chinese Walls’, however, is that they are not fool-proof and can erode over time.
Barclays has been struggling for years to overcome a toxic culture where it historically, and recently, has been at odds with regulators.
Relations came close to breaking down totally in the Bob Diamond era and Staley had his own run-in, when he was recently censured for attempting to expose a whistleblower.
The bank has been dogged by a crisis era loan of $3 billion it made to Qatari investors, when it carried out an £11.8 billion emergency fund- raising in 2008 to avoid a UK Government bail-out.
Charges by the Serious Fraud Office related to that loan have been thrown out by a court but former senior managers are still on the hook.
Staley’s view on the investment bank has been at odds with the previously expressed opinion of the chairman, who has said he thought it best to shrink it.
In any event, the notion that Barclays wants to save its investment bank for the good of the nation, rather than its own highly bonused employees, invites scepticism.
The City has oodles of investment banking expertise, which is great for larger companies. Small and medium firms, however, have far too often been exploited and maltreated by their lenders.
It may not be as exciting, or as lucrative, but what we really do need is a properly functioning business bank.