Diamond in La-La Land
January 12th, 2011
This morning’s “grilling” of Barclays’ new chief executive, Bob Diamond, was a wholly unsatisfactory affair. A light sautée-ing would be a more accurate description.
The MPs on the Treasury Select Committee were reasonably adept at grand-standing over contentious banking issues such as excessive bonuses, lack of pay transparency, recklessness, tax avoidance, implicit government subsidies, “too big to fail”, and subdued lending to small businesses.
But in this morning’s two-and-half hour session, no-one managed to land a “killer blow” on 59-year-old US-born investment banker (or, for that matter, his colleague in the session, Barclays chief executive of global retail banking Antony Jenkins). Overall, one was left with the impression that, despite all the bluster, the government is largely impotent where banks are concerned.
There wasal outrage aplenty from the politicians on the committee about the behaviour of banks such as Barclays but, for the m morost part, it was water off a duck’s back for Diamond, who controversially took over from John Varley as Barclays’ boss on January 1st.
As the Guardian’s Jill Treanor put it, the American simply doesn’t get it where bonuses, or even the need for banking reform, are concerned. The American told MPs (at 10.27am) that the “period of remorse and apology” is over and that they should let bank executives get back to business as usual. Diamond said:-
“There was a period of remorse and apology for banks; I think that period needs to be over. We need our banks willing to take risk, confident, working with the private sector in the UK, so that we can create jobs, we can improve the economic growth, and that’s very important for the United Kingdom.”
Despite repeated questions from Tory MP David Ruffley, Diamond refused to thank UK taxpayers for the support they have provided to his sector (and, indirectly, his bank) over the past two to three years. Instead he just thanked central banks around the world.
The Barclays boss also seemed impervious and oblivious to the rage that everyone who isn’t a banker feels at the ability of state-rescued bankers to continue to award themselves obscene sums in salaries and bonuses (for more on this, read Simon Jenkins Stop appeasing the bankers and call their bluff in the Evening Standard.)
Yves Smith hit the nail on the head when, writing in Naked Capitalism, she said:-
“Despite its artful packaging, Diamond’s presentation was yet another reminder of the banking industry’s continued extortion game, namely, that they can take outsized, leveraged risks and when they work out, pay themselves handsome rewards, and when they don’t, dump them on the taxpayer.”
In her post Smith — author of Econned: How unenlightened self-interest undermined democracy and corrupted capitalism, and who formerly worked at Goldman Sachs, McKinsey & Co and Sumitomo Bank — demolishes the arguments used by the likes of Diamond to defend high pay, concluding by saying:
“Diamond’s candy-coated defiance shows that three years after the crisis, nothing has changed.”
In September 2010, Barclays appointment of Diamond as Varley’s successor caused consternation in the UK. It was widely interpreted as a signal that David Cameron’s coalition government had caved in to the bankers (since Diamond is considered unlikely to have accepted the job unless he had received guarantees from the UK government that Barclays would not be broken up).
Diamond is known as a recklessly ambitious dealmaker in the Sir Fred Goodwin mould (if the Barclays board, the FSA and Fred the Shred hadn’t intervened, the American would almost certainly have landed Barclays and the UK taxpayer in the soup by buying ABN Amro for €68bn plus in October 2007 and the bankrupt Lehman Brothers in September 2008. Luckily he was stopped. He seems to have forgotten this).
It was for these reasons that the Independent’s chief leader writer, Ben Chu, dubbed Diamond “The most dangerous man in Britain” at the time of his appointment and later provided empirical evidence as to why “too big to fail” banks such as Barclays remain an accident waiting to happen for the UK economy.
The two MPs who came closest to rattling Diamond were Chuka Umunna, Labour MP for Streatham, and Andrea Leadsom, Conservative MP for South Northamptonshire, who formerly ran a division of Barclays de Zoet Wedd (BZW.)
Umunna highlighted Barclays use of a network of 300 subsidiaries located in tax havens such as Jersey, the Isle of Man and the Cayman Islands to reduce the amount of tax it (and its customers) pays. He accused the bank of engaging in “tax avoidance on a grand scale“.
Diamond did not deny the existence of the subsidiaries but seemed unsure of the numbers. He also admitted that the bank sought to avoid tax — by only denying “evasion”. Diamond pledged to come back to the Treasury Committee with more detail on Barclays’s tax arrangements including how much of the $2bn a year it pays in UK taxes comes from non-payroll taxes.
For me, the best question came from Andrea Leadsom. It was long, but I reproduce it here in its entirety. She basically accused Diamond of being a serial fantasist, a Walter Mitty character and perhaps even serially mendacious:
“I read, over Christmas, my seven-year-old The Emperor’s New Clothes and I have to say there is [a similar] fantasy story going on here.
“You talk about universal banking, and certainly I recall from [my] Barclays days that the dream was to [build] a multinational, global bank, [but this was] very rarely if ever achieved. Your argument for maintaining the status quo is that multinational organisations need multinational banks [but] I just don’t agree with you.
“Your argument about attracting the greatest talent — everybody knows that in every organisation you have perhaps 2% or 3% of true talent and the rest are all fungible. And we could have countless discussions about that. But there isn’t that massive talent, through 25 years in banking I can absolutely vouch for that, as I’m sure you would over a few bottles of wine.
“In terms of [this notion that] banks are going to move — if we’re nasty to them, they’ll move — the evidence just doesn’t stack up. There’s no evidence to suggest that banks are all going to move and you said yourself, today, that Barclays is a UK bank and is likely to stay here. I’ve had similar discussion with lots of other banks.
“It’s extremely disappointing that you seem to just argue for the status quo for its own sake. You’re in denial about the extent to which the taxpayer has supported you … You talk about [being] run by your shareholders and yet we absolutely know that’s not true. The corporate governance, particularly of the banking sector, has simply not been strong enough. They don’t have enough information.
“You’re denying there is a lack of competition; you’re claiming high levels of customer satisfaction,[a claim that’s] hugely challenged throughout the industry and you’re claiming to support SMEs. [But] the CBI, the FSB, they just don’t agree with you.
“And it just seems to me that the Emperor has no clothes. When we [the Treasury committee] talked about bringing in a banker, I was jumping up and saying can we bring in Bob Diamond in the real hope that, as an investment banker, you would have a very clear, cynical and thorough perspective about what’s going on in the banking world — but you’ve given us nothing.
“And going back to what Jesse [Norman MP]was just saying about who gets paid out first, surely the reason bonuses are so obscene dates back to the days of partnerships, small investment banking partnerships, where liabilities were unlimited and that has simply gone, but the remuneration is upside only. It’s like playing Black Jack. You keep playing until you blow up because there is no downside to you individually. Is that not the case?”
Diamond, who sat poker-faced throughout this long, somewhat rambling question, responded by saying:
“No I would disagree with many of the things you said.”
Diamond then used diversionary tactics and sought to undermine Leadsom by saying that BZW was unsuccessful in her day and that at that time it never made money outside of the UK. “Frankly, it got trampled by the US bulge bracket firms.” Of course this was of limited relevance to her question.
There are other reasons to mistrust Diamond. For example during the Treasury committee hearing he claimed that Barclays was firmly rooted in the UK and has no intention of moving overseas. He said:-
“We took our first deposits in the City of London in 1690. We have 320 years of history in London. We have no intention of changing that… Our starting position is clear. We will be here in the UK and this is the place we want to succeed.”
This, from a guy who was a main board director of Barclays in April 2007, when it announced that it was moving its head office lock, stock and barrel to Amsterdam.
Diamond, who was paid more than £70m as boss of BarCap in 2006-09, appears to think he is a member of a “protected species”, who lives in a parallel universe where the normal rules don’t apply.
During the session, Labour MP George Mudie warned the American investment banker that, if nothing is done to address the bonus issue, there is going to “hell on the streets” of the UK in coming months. The TUC general secretary, Brendan Barber, later denounced Diamond as “the poster boy for everything that is wrong about Britain today.” Bob Crow, general secretary of the Rail, Maritime and Transport union later warned that the payback will come. He told Bloomberg:-
“My advice to any worker told they should take a pay freeze or a pay cut this year is to point to the bankers, stand firm and demand a fair deal. That is exactly what RMT will be doing. Our members didn’t create this crisis and those that did are laughing all the way to the bank.”
- New Economics Foundation: why bonuses are a matter of public interest
- Guardian live blog of the TSC hearing
- FT live blog of the TSC hearing
- Chris Skinner’s Financial Services Club blog
Short URL: http://www.ianfraser.org/?p=3206