Barclays’ Diamond choice spices up strategy debate

September 7, 2010

Bob Diamond’s promotion to chief executive of Barclays is no surprise. The driving force behind the UK bank’s investment banking arm was a candidate for the top job back in 2004, and Barclays Capital’s rise since then — it contributed over 80 percent of the group’s pre-tax profit in the first half of 2010 — made him a shoo-in.

The question is what the decision means for Barclays’ future structure. The UK banking commission, which reports next year, is examining whether to demand that lenders separate their retail and wholesale arms. Barclays’ leaders have to consider every possible scenario.

Superficially, Diamond’s promotion doesn’t change things. He has promised to continue the universal banking strategy set by his predecessor, John Varley. He will return to London from BarCap’s New York base, where he moved after the acquisition of the U.S. operations of Lehman Brothers. The bank’s stated aspiration to limit BarCap’s profit to a third of the group total has yet to be abandoned.

But putting a notoriously high-earning American investment banker in charge could change how Barclays reacts to demands for structural change. Even if the commission stops short of splitting investment banks from retail lenders, Diamond’s transatlantic perspective and association with Barclays’ main money-maker might make him less inclined to seek a compromise.

By contrast, the U.S. may look a more hospitable home. The country’s regulatory shake-up has stopped short of enforcing a retail-investment banking split, and it has not made much progress with a balance sheet levy — in marked contrast to the UK version, which could cost Barclays several hundred million pounds a year. Diamond could make a reasonable shareholder-friendly argument that Barclays would be better off in the United States.

Even if such a move required Barclays to spin off its UK retail banking arm, that is something Diamond might be more willing to contemplate than his predecessor was. The banking commission will be aware of this as it deliberates in coming months.

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Barclays Banking Style : The Diamond way: It is worthwhile to mention that Barclays Bank has done so many goof-ups particularly in the last 4 years be it acquisition or expansion. Their strategy is very short term in nature. They believe in “Get out out at the nick of the time” from a deal. For example, they spent an awful amount of shareholders monies to expand in “Emerging Markets” and set up a base in Dubai, UAE in early 2005. With the down fall of Dubai’s financial engine in 2008, they ended up in having to make huge provisions and nurse a huge pile of NPA’s (non performing assets). The way they grew in Dubai during the period 2005 -2008 seemed highly unprofessional and without any planning whatsoever. They are paying the price now by way of huge provisions and NPA’s. As a face wash, they goofed up again in 2008 and used unprofessional shortcuts and made highly qualified bankers redundant without reason or rhyme. They have started paying the price. They are now planning to spend over GBP 100Million to rectify this situation in the so called Emerging markets region and reduce their exposure in Dubai, UAE. Basically the franchise has lost credibility and name. The senior management sitting in Dubai, UAE are busy building stories on daily basis and power point presentations to justify their respective positions. It is high time that the shareholders look into the affairs of their Middle East operations which are not above board and draining the organization.

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