Barclays boss: banks should be allowed to fail
Siobhan Kennedy
Washington Correspondent
Barclays boss Bob Diamond tells MPs banks should be “allowed to fail”, and that the credit crunch “blame game” is over – but pledges to show restraint in bonus season, as Siobhan Kennedy writes.
The new boss of Barclays today pledged to be sensitive about the upcoming multimillion pound bonus season and said he would do his best to show restraint.
But Bob Diamond, the American who previously ran the bank’s investment banking arm, said the time for apologies over bankers’ pay and behaviour was over.
“The biggest issue is putting the blame game behind us. The time for remorse is over,” he told MPs in the Treasury Select Committee.
Banks in the city, including Barclays, are set to pay up to £7 billion in bonuses to staff in the next month. Barclays is due to be one of the highest payers because it didn’t seek a bailout from the British government during the crisis, so has more leeway to pay more.
But speaking later in the House of Commons, George Osborne said there was pressure on all the banks to lower their bonuses and lend more to struggling businesses.
And the Chancellor threatened that “nothing is off the table” if they didn’t do so.
Yet if Bob Diamond’s reaction was anything to go by today, it’s not clear how much progess is being made. Under extreme questioning from MPs, he repeatedly refused to be more transparent about bonuses, and refused to say whether or not he would forgo his own bonus, which is set to top £8 million, although he did waive it last year.
But he insisted he was sensitive to the public anger over huge payouts and said as the new CEO he would “show any restraint possible” on bonuses. Though again, he wouldn’t say how big Barclays’ own bonus “pool” would be, insisting it had not yet been finalised.
The Amercian boss was equally light on detail about lending targets – a key pressure point from David Cameron and George Osborne.
Instead, he insisted the bank was committed to lending to small businesses – but refused to reveal how much the bank would agree to give out this year.
Mr Diamond, who’s being grilled by the Treasury Select Committee, was making his first public appearance since taking on the Chief Executive role earlier this month.
Bets are on: will Bob Diamond take his bonus?
If Bob Diamond's body language and rhetoric is anything to go by today, I'd put money on it that the Barclays boss will take a bonus for 2010, writes Channel 4 News Business Correspondent Siobhan Kennedy.
Why? There were a number of clues. First he went to great pains to say that BarCap, the investment banking arm of Barclays, would provide the bulk of profits for last year, a feat achieved under HIS leadership while the rest of the bank struggled with indebted customers and a slowing housing market. It was BarCap that saved the day.
Then he cleverly wouldn't be drawn on whether or not he would forgo his bonus, mostly because he had not been offered one (semantics in the extreme - the committee which sets bonuses is due to meet in the next couple of weeks, yes, but given the political nature of the issue it's hard to believe Mr Diamond is waiting to be offered one to decide what to do with it).
Then there was the admission that no-one, not even the Prime Minister or George Osborne, have actually asked him to show any restraint anyway (not at least to his face). And overarching all that, the constant repetition that bonuses can not be viewed in isolation and that they are vital to keep the bank competitive. Especially now, stressed Mr Diamond with his huge ladle, when they needed to work so hard to support the Government's mantra on growth. In other words, to not pay bonuses could threaten the recovery itself...
All of which, in my opinion, makes it likely that Mr Diamond will accept some of the double-digit million pound bonus offered to him in the next few weeks. He will show restraint, as he promised, and a good chunk of it will be in shares and deferred, which is really the best David Cameron and George Osborne can hope for.
They know only too well that getting the overall bonus "pool" number down is the best they can do. And in the absence of a global agreement on payouts - impossible to achieve and the American public aren't clamouring for one anyway - British banks will simply go on paying them.
He told MPs that no bank should make a concrete commitment on total lending without considering the credit worthiness of each borrower – saying that kind of behaviour was how RBS and other banks had got into trouble.
David Ruffley MP pressed him: “Will you resign if you do not increase lending in the coming year. It’s yes or no”.
Mr Diamond said the best thing Barclays could do for the British economy was to be a strong bank – adding: “We are not making the UK a better place with weak standards around credit.”
The Barclays boss was also pressed on the extent to which the British taxpayer had been forced to shore up the banks – and, after being pressed several times, agreed that he was grateful to the public. But he insisted “at Barclays we are very proud we never failed a stress test, we never took a single penny of taxpayer money anywhere in the world.”
Banking on bonuses: Who Knows Who looks at the big beasts in the City who are still likely to take home major sums in this year's bonus season
And he stressed that it was up to financial institutions to manage themselves effectively – telling the committee: “It’s not OK for taxpayers to bailout banks. They should be allowed to fail.”
But bonuses were by far the most contentious issue. In his previous incarnation heading up the investment bank Barclays Capital, his total pay package for 2007 was worth around £21m.
“It’s not OK for taxpayers to bailout banks. They should be allowed to fail.” Barclays Chief Executive Bob Diamond
Last year it was claimed he’d received more than £63m under a reward scheme. Indeed such is his fortune, thought to be around £95m, that at the time, Lord Mandelson described him as the “unacceptable face of banking”.
Mr Diamond admitted that the bank had not done a good job explaining its bonus and incentive system to the public.
“I don’t think we’ve done a very good job explaining how the compensation process is integrated and how investment contributes to society and our clients. I pledge to do more”, he said.
Barclays is due to report its financial results – and reveal the size of its bonus pool – on 15 February.
The chairman of the Treasury Committee – Conservative MP Andrew Tyrie – told Channel 4 News that “practical action” was needed by the banks to address the problems which had been created.
“We cannot just carry on as we are,” he added. “We must have a system of managing banks – and particularly corporate governance that reduces the risk that can be passed on beyond the shareholders to the general public.
“The taxpayer paid a packet and is rightly extemely angry that banks appear to be paying very large bonuses to themselves again.”