Opinion

Felix Salmon

Can Barclays be salvaged?

Felix Salmon
Jul 3, 2012 14:15 UTC

It’s easy to be rude about banks’ boards, and how they tend to be filled with tick-the-boxes types: the management consultant, the retired general, the business-school professor, and a bunch of “private investors” (or “people who inherited their money”, as they’re also known). And given its manifest incompetence over the past week, I clicked over to the list of Barclays board members fully expecting to see the same usual suspects — especially since the chairman, Marcus Agius, sounds like he really ought to have been born about 2,000 years ago.

But the fact is that the Barclays board is actually not bad, on its face. Yes, 10 of the 12 members are white men in their 50s or 60s. But if you were looking for a board which clearly understands issues in both finance and governance, I’d say that this lot was pretty good, compared to any US bank I can think of. Which makes it all the weirder how they managed to get such a spectacular amount of egg on their collective faces this week.

It was always a bit peculiar that Barclays’ chairman would resign while the CEO remained in place. “As chairman, I am the ultimate guardian of the bank’s reputation,” he said yesterday. “Accordingly, the buck stops with me and I must acknowledge responsibility by standing aside.” This of course begged the obvious question: was Bob Diamond, the CEO, somehow not a guardian of the bank’s reputation? And given that Agius’s main failures were in the way that he managed Diamond (or, more to the point, didn’t manage Diamond), how would Agius’s resignation with Diamond still in place help anything?

Today, it looks as though the board was attempting to sacrifice Agius — who had already said he was retiring next year in any case — in a doomed attempt to placate the UK’s parliament and media. Obviously, it didn’t work, and now we see an ignominious switcheroo: Diamond is out, along with COO Jerry del Missier, and Agius is back atop the board, looking for a successor.

“To state the obvious,” as Robert Peston says, “the impression has been created that this hugely important institution is not in charge of the basics of its destiny.”

Indeed, Peston reports that the decision to defenestrate Diamond was taken not by the newly-leaderless board at all, but rather by Mervyn King’s eyebrows. It’s surely right that when a board finds itself with a complete absence of testicular fortitude, top regulators have to step in to force the issue. But there’s something fishy here, too: Clive Horwood reports that at his scheduled testimony to Parliament tomorrow, Diamond was planning on blaming not himself for the Libor-fixing scandal, and certainly not Agius but rather — wait for it — the Bank of England. Which turns out to be the very institution which kicked him out, the day before he was due to testify.

The whole thing is incredibly messy and opaque, and will only serve to further damage Barclays’ reputation. Can that reputation be salvaged? I’m not sure it can: institutions the size of Barclays are hard to change, especially when a large cohort of their highest-paid employees used to work at Lehman Brothers. I very much doubt that any internal candidate could turn this ship around, and even a high-profile outsider — Bill Winters, perhaps — would find it incredibly difficult to take this peculiar beast and turn it into something comprehensible and manageable. Especially if he would be expected to raise the share price while doing so.

In the meantime, it seems that the newly-unemployed Diamond will still testify tomorrow; his departure today is unlikely to soften the blows from Britain’s parliamentarians. And given that Diamond’s resignation was clearly involuntary (Diamond pulled out of a Romney fundraiser yesterday “to focus all his attention on Barclays”), if anything he’s going to be more likely to veer off-message and start railing against those he blames for his own downfall. Who surely include Mervyn King. This is not likely to be an edifying spectacle, although it might be compelling in a car-crash kind of way.

I suspect the best bet for Barclays’ board and its new CEO, whoever that turns out to be, will be to get out in front of Vickers, and make a virtue out of necessity. Ringfence all the UK retail-banking operations and turn them into a boring utility. Then take everything else, including the whiz-bang traders and investment bankers, and list them as a separate company, most likely in the US, which can take on as much risk as its regulators allow it to. I believe the LEH ticker is still available.

COMMENT

Nobody is boycotting Barclays yet, as far as I know. Yet in the 1970′s, rather a lot of people boycotted them over their links to the apartheid regime in South Africa. They recovered from that – apparently so well that op-ed writers like Mr Salmon are unaware that it even happened, even if everyone in the population at large remembers it. Therefore, they can recover from this.

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Corzine’s tone-deaf statement

Felix Salmon
Nov 4, 2011 15:23 UTC

Jon Corzine has not said anything in public since his firm and his reputation imploded at the end of last week. So his first public statement was always going to be closely watched. And it’s a doozy:

I have voluntarily offered my resignation to the Board of Directors of MF Global. This was a difficult decision, but one that I believe is best for the firm and its stakeholders.

I feel great sadness for what has transpired at MF Global and the impact it has had on the firm’s clients, employees and many others.

I intend to continue to assist the Company and its Board in their efforts to respond to regulatory inquiries and issues related to the disposition of the firm’s assets.

Firstly, this was a difficult decision? No, Jon, it wasn’t. You had no choice. If you hadn’t quit, you would have been fired. In fact, I’m kinda shocked the board hadn’t got around to firing you before today. If you drive a broker-dealer into bankruptcy with the loss of $630 million in client funds, resignation is a no-brainer. The only question is whether you’re going to end up going to jail.

And secondly, would it be too much to ask for just a tiny hint of remorse here? A short apology, perhaps, to the thousands of employees and customers who have lost their jobs or their money?

I’m sure you’re sad — that often happens, when you become the living embodiment of the destructive greed of the 1% and a hate figure for millions. But are you sorry? Or are you going to pull a Dick Fuld and live in denial, convinced “until they put me in the ground” that you’re a victim rather than a perpetrator?

This kind of thing is why there’s so much anger aimed at the 1%. Chances are, Corzine will never be prosecuted, let alone convicted, and that he’ll enjoy the comfortable retirement of a centimillionaire for decades to come. He deserves much worse. But right now, when it matters, he can’t even bring himself to say he’s sorry.

COMMENT

I wonder why we don’t see any reference to the fact that Corzine has to have committed at least one felony, and probably many? Certainly as the CEO of MF Global he was required by Sarbanes-Oxley to certify personally that they had adequate accounting controls. The missing money is incontrovertible proof that they didn’t, and the nice thing is that the prosecutor doesn’t have to prove intent to defraud.

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Why Sallie Krawcheck had to leave BofA

Felix Salmon
Sep 7, 2011 14:31 UTC

Here’s how best to explain what happened to Sallie Krawcheck yesterday: Krawcheck was the head of Merrill Lynch’s Thundering Herd, reporting directly to Bank of America CEO Brian Moynihan. But Merrill Lynch’s Thundering Herd is no longer particularly important to Bank of America. When Krawcheck was offered a position commensurate with the importance of her team to the bank, she quit — as Moynihan knew she would.

Here’s a simpler way of seeing the same thing: the words “Merrill Lynch” appear exactly once in the BofA press release — and then only in the context of  “institutional investor services such as Bank of America Merrill Lynch Global Research.” See if you can spot the Thundering Herd in this sentence:

Darnell is responsible for those businesses serving individual customers and clients including deposit, card, home mortgage, wealth management, small business, and related products and services.

Yep, it’s that “wealth management” in the middle there, squeezed in between home mortgages and small businesses — a good indication of how important it is, these days, to Bank of America.

In that context, Moynihan basically had two choices: he could promote Krawcheck out of Merrill to give her all of Merrill Lynch’s consumer businesses, or he could demote/fire her. Given that she has little in the way of consumer-banking experience, and risks in the mortgage area are the biggest existential threat to BofA right now, he chose the latter.

Is it the right decision to marginalize Merrill’s brokers in this way, making them just one part of a wealth-management operation which itself is just one part of the “individual customers” group at BofA? Josh Brown makes the case that over the long term it’s probably inevitable: “the jig is up,” he writes, “and everyone knows that Merrill Lynch’s fiduciary responsibility is to the shareholders of Bank of America first and the clients second.”

Which is undoubtedly true. Here’s the end of the press release:

Removing a layer of operations management, aligning leaders with our customer groups, and simplifying the organization reflect the primary objectives of the Project New BAC, begun in April 2011. These and other organizational improvements will eventually take effect across the consumer, home loans and support areas covered by phase I of New BAC…

“There is hard work ahead to finalize and implement our New BAC decisions from among the hundreds of thousands of ideas employees have submitted,” said Moynihan.

The thing to note here is the name of Moynihan’s flagship revamping project: “New BAC.” The name of the company is Bank of America; BAC is its ticker symbol. I’m sure owners of BAC shares are happy that Moynihan has them top of mind. But if you’re a wealth manager at Merrill Lynch or US Trust, you’re working for your clients first, and your clients are not going to be happy if they think that you’re ultimately working for BofA’s shareholders.

I suspect that wealth management at BofA, then, is going to act a bit like dialup revenues at AOL: a steady and dependable revenue stream, in long-term secular decline, which can be used to fund investments in the rest of the business. For the bank, that might make sense. But for Sallie Krawcheck, it clearly marked the end of the road at BofA.

COMMENT

Then Dan Bianco was fired for having an opinion that was too optimistic. Mary Ann Bartels made a Bloomberg appearance and said: “There is no reason to be long this market”. Fine, that was the flavor of the week. It seems that no one at Bank of America thinks about next week at all anymore. Nor about loyalty, disclosure, clarity, or even basic tools so that investors and advisors know where they stand.
All the while the nightmare deepens for clients and advisors as the back offices are incapable of functioning or communicating. Is it fixed or real? Is it possible that Bank of America is so broke that they can’t provide what etrade can? How do you manage wealth when current profit and loss can’t be determined? Is this deliberate and just another way to nickel and dime througlh incoherent accounting manipulation or is it just stupidity and a desire to drive any intellegent clients and advisors away? One thing is clear: without clear communication, policy and coherent support from a shocking aray of “back offices”, none of whom seem to communicate with each other wealth management becomes a farce and wealth destruction becomes the driving force. How sad and how stupid. Unfortunately I’m the most stupid as I not only am working blind, but am imprisioned by back office errors that make leaving impossible and suing perhaps the only way to ever get at the truth. How terribly wasteful and sad.

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Citi’s US branch network: Doomed to mediocrity

Felix Salmon
Jan 11, 2010 20:36 UTC

The departure of Terri Dial from Citibank only serves to underline how dysfunctional Citigroup remains, long after Vikram Pandit was meant to have created small-enough-to-manage Citicorp within the larger behemoth. Tellingly, Dial is being replaced by Manuel Medina-Mora, a manager who has succeeded within Citigroup largely by having enough power from day one to do what he wanted, rather than having to navigate Citi’s labyrinthine bureaucracy. Medina-Mora, for instance, flat-out refused to rebrand Banamex as Citibank, and so Banamex it remains to this day.

Aaron Elstein quotes Dick Bove as saying that Dial was “severely constrained in what she could do”; Bove thinks that Dial left “in total frustration” rather than being pushed. My feeling is that either way she failed to deliver results, and that she was beginning to be more trouble for the bank’s top management than she was worth.

Citi’s branch network in the US is not huge — Wells Fargo and Bank of America both have six times as many branches as Citi does — but it’s symbolically very important, as the public face of the troubled bank. The problem is that making significant changes across 1,000 different branches is an extremely expensive proposition, without any guarantee of success.

The real problem for Citi here, of course, is that it lost Wachovia to Wells Fargo. Pandit had it all worked out: Citi’s US consumer bank would get folded into Wachovia, and run out of Charlotte, by people who had a proven ability to run a US branch network extremely efficiently. (It wasn’t Wachovia’s branches which caused its downfall.) When Wells swooped in at the last minute to snatch Wachovia out of Citi’s grasp, the California bank probably saved Citi untold billions in extra losses. But it also destroyed Pandit’s last real hope for being able to build a top-tier retail franchise in the US. Terri Dial couldn’t change that fact, and I doubt that Medina-Mora will be able to do so either.

Ken Lewis, RIP

Felix Salmon
Sep 30, 2009 21:37 UTC

Ken Lewis is leaving Bank of America — and about time too. The board now has three months to find a successor; the new chairman, Walter Massey, has no real choice but to move “in a deliberate and expeditious manner” to find a replacement.

The timing is intriguing, coming the day after this statement from Jamie Dimon about Bill Winters:

“Choosing between two outstanding people is the hardest part of this job. Bill is an outstanding professional. He has expressed a desire to be his own CEO and I think that is entirely reasonable.”

Would BofA choose an investment banker as its new CEO? That didn’t work out so well for Citigroup. But on the other hand, Lewis has been personally identified with Bank of America for as long as it has existed in its present form (essentially, from the day that Nationsbank acquired the legacy BofA). There’s certainly no heir apparent.

With John Thain out, the most likely successor is probably Brian Moynihan, the man who was parachuted in to save the day in the wake of Thain’s ouster. But the fact that BofA isn’t announcing a successor now is indicative of the chaos within the bank, and indicative too that Lewis’s departure isn’t entirely voluntary.

Did Massey finally get fed up with the SEC, and the New York attorney general, and Judge Jed Rakoff, and half of Congress, and a large part of the shareholder base, all calling for Lewis’s head? Maybe we’ll see when details of Lewis’s exit package emerge. My guess is that his last act as CEO will be to strong-arm the board into giving him something very generous.

COMMENT

KENNY THE BAILOUT MOOCHER
(Minnie the Moocher, Cab Calloway)
WilliamBanzai7

Sing along link: http://www.youtube.com/watch?v=33nTnawq6 jk

Hey folks here\’s the story bout Kenny the bailout moocher
He was a low down Charlotte BAC hoochie coocher
His was the roughest toughest banking sob tale
But Kenny had an appetite as big as a securitized whale

Hidehidehidehi (hidehidehidehi)
Hodehodehodeho (hodehodehodeho)
Hedehedehedehe (hedehedehedehe)
Hidehidehideho (hidehidehideho)

One weekend he messed around with a bloke named Thain
He wanted the Merrill Bulls or he\’d go completely insane
Thain took him round the block to Chinatown
And showed old Kenny how Wall Street gangstas kick the gong around

Hidehidehide-LEVEL 3 (hidehidehidehi)
Whoah (whoah)
Hedehedehede-GREED (hedehedehedehe)
A hidehidehideho CDO (hidehidehideho)

Kenny had a dream bout yet another financial supermarket
It would give him things that he was needin
It would give him a home built of gold and steel
A diamond studded learjet with platinum wheels

A hidehidehidehidehidehidehi (hidehidehidehidehidehidehi)
Hodehodehodehodehodehodeho (hodehodehodehodehodehodeho)

Thain sold Ken a herd of bonus cows and a boatload of subprime losses
Each meal Ken ate was full of surprising new derivative courses
Had a billion dollars worth of taxpayer nickels and dimes
He sat around and counted them all a million times

Hidehidehide-LEVEL 3 (hidehidehidehi)
Hodehodehode-CDO (hodehodehodeho)
Hedehedehede-GREED (hedehedehedehe)
Hidehidehide-HOSED (hidehidehideho)

POOOOOOR MAN
POOOOOOOOOOOOOOOR MAN
POOOOOOOOOOOOOOOOOOOOOOR MAN

Hey folks here\’s the story bout Kenny the bailout moocher
He was a low down Charlotte BAC hoochie coocher
His was the roughest toughest banking sob tale
But Kenny had an appetite as big as a securitized whale

Hidehidehidehi (hidehidehidehi)
Hodehodehodeho (hodehodehodeho)
Hedehedehedehe (hedehedehedehe)
Hidehidehideho (hidehidehideho)

One weekend he messed around with a bloke named Thain
He wanted the Merrill Bulls or he\’d go completely insane
Thain took him round the block to Chinatown
And showed old Kenny how Wall Street gangstas kick the gong around

Hidehidehide-LEVEL 3 (hidehidehidehi)
Whoah (whoah)
Hedehedehede-GREED (hedehedehedehe)
A hidehidehideho CDO (hidehidehideho)

Kenny had a dream bout yet another financial supermarket
It would give him things that he was needin
It would give him a home built of gold and steel
A diamond studded learjet with platinum wheels

A hidehidehidehidehidehidehi (hidehidehidehidehidehidehi)
Hodehodehodehodehodehodeho (hodehodehodehodehodehodeho)

Thain sold Ken a herd of bonus cows and a boatload of subprime losses
Each meal Ken ate was full of surprising new derivative courses
Had a billion dollars worth of taxpayer nickels and dimes
He sat around and counted them all a million times

Hidehidehide-LEVEL 3 (hidehidehidehi)
Hodehodehode-CDO (hodehodehodeho)
Hedehedehede-GREED (hedehedehedehe)
Hidehidehide-HOSED (hidehidehideho)

POOOOOOR MAN
POOOOOOOOOOOOOOOR MAN
POOOOOOOOOOOOOOOOOOOOOOR MAN

The end of Wendelin Wiedeking

Felix Salmon
Jul 23, 2009 23:33 UTC

Last year, I put together an interactive feature for Portfolio.com entitled “Watch Out Below”; it listed nine vulnerable “tall poppies” who were liable to be cut down to size over the coming year. There were three CEOs on the list: Shelly Adelson, Ken Lewis, and Wendelin Wiedeking. Maybe it’s to his credit that Wiedeking managed to hang on longer than the other two. But now he’s been fired, while the other two still have their jobs, even if their reputations are in tatters.

The weird thing is that although Wiedeking’s now gone, the jury’s still out on what he achieved. After all, the tiny sports-car company he transformed over the past 16 years is now being bought for €8 billion on sales of about €6 billion a year. As a hedge-fund manager — which is what he most resembled of late — Wiedeking came spectacularly unstuck, thanks to a liquidity crunch he couldn’t get out of. But the brand he leaves behind him is a strong one, and even with €10 billion in debt it still has significant equity value.

Wiedeking was a classic product of the boom years, and the saga of VW and Porsche will make for many gripping books. There’s no doubt that today’s a low day for him. But I suspect that history will be much less harsh on Wiedeking than it will be on, say, Lewis.

COMMENT

If Wiedeking just take the trouble to contact me I will show him a possible route to place him right on top again. Give him my tel. no. +27 766004227 or my Email

Posted by Blomerus van Rooyen | Report as abusive

Stephen Friedman’s welcome resignation

Felix Salmon
May 7, 2009 22:04 UTC

As Kate Kelly prepares to launch her new book, she can add another scalp to that of Jimmy Cayne: Stephen Friedman, the chairman of the New York Fed, has resigned in the wake of her front-page article on Monday. His resignation letter is unapologetic (“although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper”) — but if he really felt sure about that, it seems unlikely he would have timed his resignation to coincide exactly with the release of the stress-test results, thereby ensuring the absolute minimum amount of coverage.

The New York Fed is a peculiar institution: it’s highly profitable, and dividends substantially all of its profits to Treasury, yet is technically owned not by the government but by some of America’s largest banks. Governance there is always going to be tricky. But right now is not the time to cut corners on that front, and grant waivers, especially when Friedman was actively buying Goldman stock during his tenure as chairman of Goldman’s most assiduous regulator. He should never have done that, and it’s good that he has resigned.

Update: Eliot Spitzer has a great column this week on the way the New York Fed is run, which is well worth reading. Friedman might have been a particularly egregious case, but there’s a deeper, more endemic problem at 33 Liberty Street.

COMMENT

“But right now is not the time to cut corners on that front, and grant waivers…”

So you think the Chairman of the New York Fed should have resigned on the Monday following Lehman Week — effectively at the height of the biggest financial crisis in 75 years — in order to avoid some tisk-tisk articles from journalists about the appearance of a minor conflict of interest?

Yeah, I’m gonna go out on a limb and say that that was EXACTLY the right time to grant a waiver. Seriously, if that wasn’t the right to grant a waiver, then there isn’t a right time.

Ken Lewis: Halfway out

Felix Salmon
Apr 29, 2009 22:04 UTC

I’m very glad that after the literally ridiculous performance he put on today, BofA’s Ken Lewis has been stripped of his job as chairman. Annual meetings are largely theatre, of course: the important votes have all been cast long before the meeting takes place. But with Lewis still saying with a straight face that the acquisitions of both Countrywide and Merrill Lynch were a really good idea, I can’t see how the principle of shareholders (as opposed to the CEO) electing the chairman could really survive Lewis’s re-election.

For the time being, Lewis remains as CEO, but that’s up to the board, which presumably now will take succession planning much more seriously than it has done hereunto. If and when a viable candidate for CEO emerges, I doubt Lewis will stay in charge for long.

COMMENT

From Wikipedia re the China melamine baby milk scandal.
“On 22 January 2009 Tian was sentenced to life imprisonment, while other Sanlu executives received sentences of five to fifteen years. Two other men were sentenced to death.”
I guess some “Masters of the Universe” are glad they are in the USA.
Another competitive advantage for China when too much power brings too much corruption ?

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