Barclays: Captain credible

They are not exactly etched in stone. But for now at least the buzzwords of Barclays’ three-year cultural reinvention remain on prominent display at the bank’s Canary Wharf headquarters. The 7ft-tall acetate plaques exhort staff to show respect, integrity, service, excellence and stewardship.

Installed by Antony Jenkins, the chief executive who was fired unceremoniously by new chairman John McFarlane over the summer, the “RISES” tablets now seem almost like headstones commemorating the former boss’s fast-fading and often-ridiculed legacy.

With Barclays about to appoint veteran US investment banker Jes Staley as its next chief executive — regulators permitting — critics say it is almost like the past three years never happened. “When he left, it was as if he was instantly expunged from corporate history,” says one friend.

The Jenkins era began in July 2012 when Barclays was plunged into crisis by the governor of the Bank of England’s decision to force out Bob Diamond as chief executive amid uproar over the bank’s role in the Libor interest rate rigging scandal.

At a crisis meeting to decide who should replace Mr Diamond, most board members agreed with their headhunters that by far the best candidate was Mr Staley, then head of JPMorgan Chase’s investment bank. But PR adviser Sir Alan Parker warned of a terrible backlash from regulators, politicians and the media if Barclays hired another American investment banker — especially as it would have cost about $30m to buy out his contract.

Instead, the board opted for the safer choice of Mr Jenkins, who was running its British retail bank. “It has taken us three years to realise that this was a mistake,” says a person involved in choosing Mr Jenkins and Mr Staley. “But at the time, there was such hysteria around Barclays, we felt we had no choice.”

Barclays’ attempt to turn the page on adopting a “hair shirt” strategy during conciliatory interactions with hostile policymakers comes as the mood in the City of London has turned far brighter following the Conservative victory in May’s election. George Osborne, chancellor, has signalled that the government will take a more industry-friendly stance. “It’s changed from an attitude of punishment to ‘let’s get the economy working’,” says Anthony Browne, chief executive of the British Bankers’ Association. “It’s just a more constructive agenda.”

In the past week alone, there have been two significant examples of a more pragmatic approach. On Wednesday the Treasury ditched rules that forced directors of financial services companies to comply with a so-called reverse burden of proof to escape sanction for the misdemeanours of staff. On Thursday, the severity of the incoming ringfencing regime, which will segregate the operations of high-street banks from investment banking activities, was eased so that hived-off retail subsidiaries will be able to distribute capital to parent companies.

The clearest change of tone came in June, when Mr Osborne referred to “a new settlement” with the City of London. Weeks later, Martin Wheatley, the bank-bashing head of the Financial Conduct Authority, was eased out of his job. A less aggressive successor is expected.

Podcast

Barclays picks Staley, UK ringfencing and Credit Suisse

Patrick Jenkins and guests discuss Barclays’ choice of new chief executive, whether the UK regulator is watering down the idea of ringfencing, and Credit Suisse’s preparations to raise capital.

“Like a frog in boiling water, there is a risk we end up with only US investment banks in the UK and that will be a real disaster for the City of London,” says a senior person closely involved in recent talks between Barclays and the Treasury. “The chancellor and the Treasury realise that.”

Easing pressure on the City has also become an economic priority for the chancellor, as evidence has mounted that the UK’s flailing productivity levels — down 16 percentage points compared with the pre-crisis trend — can in large part be blamed on the growing inefficiency of financial services companies.

Last week, lobby group TheCityUK said London-based jobs in the financial services and related professional services sectors had hit a record high of nearly 730,000. Yet the bulk of the growth came in areas connected with the toughening regulatory environment — in legal and compliance, for example — suggesting that the clampdown has hurt banks’ productivity.

Those “unproductive” roles are a large part of the problem, says Jonathan Haskel, a professor of economics at Imperial College London. “That 16 percentage points number [for falling productivity] would be one-quarter less if you took out financial services,” he says.

Improving productivity will be an important objective for Mr Staley. Investors and politicians have interpreted his pending arrival at Barclays as a bullish sign that it will pour money back into investment banking and reverse the cutbacks of recent years.

However, insiders say the new boss, who is expected to start early next year, is likely to shrink the investment bank even further, at least initially. “If anything he is more aggressive than we have been,” says a senior figure familiar with the bank’s strategy.

Mr Jenkins took two shots at reshaping the investment bank, promising to slash a quarter of the unit’s 28,000 staff and squeezing it from using half the group’s capital to a third. While its performance has improved this year, the division is still struggling to consistently earn a return on equity above its cost of capital of about 10 per cent.

Insiders at Barclays’ investment bank are not expecting Mr Staley to protect them from cuts, or give them a mandate to use more capital. But they do see an upside to his appointment. “It’s always a positive to have someone who understands the investment banking industry,” says one executive.

Rivals have poached several senior investment bankers from Barclays in the past two years, particularly among the ex-Lehman Brothers team it acquired after the US group’s collapse during the financial crisis. This has been a concern for Barclays directors, who are acutely aware of how investment bankers “scrutinise every word” for any lack of commitment, and are hoping Mr Staley’s arrival will reassure staff.

“It is sad; a lot of ground has been lost,” says a senior Barclays executive. “What is clear from the Antony Jenkins experience is that the risk of hiring someone who doesn’t understand investment banking is greater than someone who doesn’t understand retail banking, which you can pick up pretty quickly.”

Ronit Ghose, banks analyst at Citigroup, says Mr Staley’s experience makes him well equipped to make cuts while keeping up morale, adding: “You need a credible investment banker to restructure an investment bank; it is like decommissioning a nuclear reactor — you need a nuclear physicist to do it.”

Shares in Barclays fell when news of Mr Staley’s planned appointment leaked. Yet some shareholders are optimistic that he can bring more coherence to its strategy. One top 10 investor in Barclays says: “Barclays should not waste its expertise in investment banking, so bringing in an investment banker who has served at the knee of [JPMorgan chief] Jamie Dimon makes sense.”

He may have spent 34 years rising up the ranks of JPMorgan and own a 90ft yacht, but Mr Staley is not an archetypical investment banker, according to several people involved in hiring him.

“He has never been on the trading side. He is a completely different animal to Bob [Diamond],” says one. Both are Boston-born, high-flying financiers. But that is where most similarities end — as Barclays is itching to point out, although it will have to wait until Mr Staley’s appointment is approved.

Mr Diamond is a swashbuckling former bond trader with a magnetic personality. Mr Staley keeps a lower profile and joined JPMorgan on its Brazil desk when the US group had little in the way of investment banking. “He is more balanced,” says a senior banker.

A former colleague describes Mr Staley as “very international” and “very good with clients”, citing his strong relationships with endowment and sovereign wealth funds. The 58-year-old built JPMorgan’s equity capital markets business before running its private banking and asset management units. He led the investment bank for four years before joining US hedge fund BlueMountain Capital in 2013.

A slight worry for Barclays insiders is his inexperience in both the UK and retail banking. But they say the bank is strong in these areas, with Ashok Vaswani running its retail bank and Mr McFarlane knowing his way around British corridors of power.

Investors will watch closely to see how Mr Staley works with Mr McFarlane, a gruff Scot known for being overbearing. The chairman, who has become used to having full command of the bank since ousting Mr Jenkins in July, has set an internal target to double the bank’s share price in three years. Mr Staley must already know that if he fails, the consequences will be brutal from the man dubbed “Mac the knife” for his habit of firing chief executives.

An early sign of how much of a culture shift to expect at Barclays is whether the RISES slogans remain in the bank’s lobby. Insiders say they are crude and ineffective devices to effect a genuine change of attitude among staff. But they know, too, that to remove the symbols of the bank’s ethical commitment — however superficial they may be — might send the wrong signal.

“If we took them down, it would look as if they didn’t matter any more,” admits a frustrated insider.

Additional reporting by Laura Noonan and David Oakley