Abigail with attitude: The hypocrisy of Jenkins revisited

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By:
Abigail Hofman
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After my March column had been published, I suffered a pang of writer’s remorse. Had I been too harsh when I criticized the “crony capitalist culture” at Barclays’ investment bank and accused group chief executive Antony Jenkins of hypocrisy?

“Another thing that irks me,” I wrote, “is that, despite much pontificating about changing the culture of the investment bank, the top managers are still the old guard. A complete change of culture? Please, don’t talk nonsense.”

My writer’s remorse was assuaged, however, when the Salz review  was published in early April. This was a voluminous review commissioned last summer after the bank was fined some £290 million for manipulating the Libor rate. It was put together by Anthony Salz, a Rothschild vice-chairman, and cost £17 million to produce.

How much? And why was Rothschild paid £1.5 million for giving up Salz for the duration of writing the report? That’s more than Jenkins’s annual salary.

The report talked about warped pay levels, an “entitlement culture” and a lack of “transparency and candour”. It didn’t make pretty reading, but should not have come as a shock to anyone who has been diligently following this column during the past seven years. And funnily enough, no one had to pay me £17 million to draw these conclusions.

Salz claimed that pay levels at Barclays were one of the most pernicious cultural problems, particularly among an inner circle at the top of the firm that he dubbed “the top 70”. In 2010, according to Salz, the top group earned 35% more than the “market benchmark for their positions”. Although the pay premium has fallen since, it remains in place and averaged 17% in 2011.

Salz’s recommendations are banal and include such obvious suggestions as more transparency and greater board engagement. He also argued that the HR function needed to be strengthened. I found this particularly ironic given that Rich Ricci, the former head of the corporate and investment bank and a close associate of Bob Diamond, had at one time run Barclays Capital’s HR department before he rose to preside over the flawed culture that Salz attacks.

Barclays is aspiring to be a mini Citi. King, with his background, will get that more than a lone-wolf, eat-what-you-kill, M&A Lehman banker like McGee
Since Bob Diamond and Jerry del Missier left Barclays last summer, the market has been wondering how Ricci could survive. He will be retiring in June. Ricci will be replaced by co-heads in Eric Bommensath and Tom King. Skip McGee becomes chief executive of Barclays in the Americas.

This irritates me. Jenkins seems to be assuming that shareholders and commentators have limited intelligence. It is also hypocritical. Salz identified a coterie of senior bankers who were overpaid and responsible for the ends-justify-the-means culture at Barclays Capital. I am pretty certain that the majority of that “gang of 70” still work at the firm. And the newly elevated executives are also closely associated with the previous hierarchy.

Bommensath was del Missier’s closest colleague and has worked at Barclays’ investment bank for over 15 years. King was a friend of Diamond and hired by him from Citi in 2009. And McGee was one of the key people with whom Diamond negotiated when he bought Lehman Brothers in September 2008. So it’s hardly a case of out with the old at Barclays.

King has enjoyed a quick ascent. Initially, in 2010, as head of European investment banking, he reported to McGee, the global head of investment banking, but he has now taken his former boss’s job. “That’s understandable,” a source purred. “Barclays is aspiring to be a mini Citi not a maxi Lehman. It’s all about integrating the offerings of the corporate and investment bank. King with his background will get that more than a lone-wolf, eat-what-you-kill, M&A Lehman banker like McGee.”

This reorganization is a botched compromise. A bolder, and probably wiser, move would have been for Jenkins to bring in an outsider to head the corporate and investment bank. This would have underlined that a new era had begun. Instead Jenkins and his chairman, Sir David Walker, have pandered to people who are overly associated with the past. Wasn’t Bommensath, as head of fixed income, in charge of the area where the Libor-rigging scandal occurred, even if he has not been directly implicated in any of the wrongdoing? Are Walker and Jenkins worried that the franchise might fall apart if they act boldly on personnel matters?

This January, Jenkins insisted that employees at the bank had to adhere to five core values or leave the organization. The values were those of respect, integrity, service, excellence and stewardship. I read the memo where this policy was laid out with a wry smile. Jenkins comes across as an earnest retail banker who isn’t paying his corporate communications staff enough.

McGee needs to be kept on side because he is a symbol of the Lehman deal. And Jenkins can’t afford former Lehman employees sloping off into the dark blue yonder. Thus McGee’s new role as chief executive of the Americas is painted in glossy, if not glowing, terms. “Barclays’ business in the Americas is of critical strategic importance to the bank,” says the press release. “Already the largest source of income, outside of the UK, it represents strong growth potential.”

The announcement continues: “Additionally, we want to have the strongest possible relationships with our US regulators,” skating over the fact that Barclays’ relationships with the US regulators today rank on an indeterminate scale between A for abominable, D for dire and Z for zero. Think about the trifecta of recent mishaps: Libor rigging, alleged energy market manipulation in the US and the Qatari capital-raising probe.

A mole is pessimistic about the future for Barclays in the US. “They are perceived to be gone,” he sniffed. “I actually wonder whether they will have an American investment banking operation in five years’ time.”

When I pressed the mole on the reasons for his gloom, he argued that no European firm had ever made it to the top in the US. “The minute they lose momentum and stop paying people, they drop out of sight. Think about the false dawns experienced by UBS and Deutsche Bank. Even Credit Suisse, which did well at first with First Boston, is now faltering. In the future, the US will be about US banks.”

Another source also sounded a note of caution: “Jenkins may be smart, but is Barclays today any more than accountancy on steroids? Which is probably true for most European banks. Bob, in his first incarnation, built something. His creation may have outgrown itself. But you can truly say that Diamond started with a minnow and grew it to an organization that competitors feared.”