Barclays: Move along, (almost) nothing to see here

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By:
Mark Baker
Published on:

Jes Staley gets to stay in his job, but his difficulties don't end with one investigation

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It is a measure of the strange world in which banks and their chief executives operate that this morning’s news that the head of Barclays is to be fined by two UK regulators looks somehow like a good result.

Good for the firm, in that no institutional failure has been identified that would warrant punishment. And good again in that it saves Barclays (for now) from the upheaval of another change at the top.

Good for Jes Staley, the chief executive in question, in that he keeps his job. He was appointed a few months after John Cryan at Deutsche Bank back in 2015 – for the moment, at least, he’s sitting slightly prettier than his former peer at the German bank, unceremoniously booted out earlier this month. The management meltdown that’s going on in Frankfurt right now is a nasty reminder of how these things can snowball.

Good for Staley again in that he has basically been judged a bit clueless rather than lacking in integrity – which would likely have been much harder to wash away with a mere fine. He is still “fit and proper”. That’s a real positive.

And good for the regulators? Hmm. According to a statement from Barclays this morning, the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) have clearly done all they want to do about the hapless attempts by Staley to discover the identity of a whistleblower who was writing to the bank’s board with allegations about a former JPMorgan colleague that Barclays had hired.

The conclusions are fairly straightforward. Staley and Barclays have both been served with draft warning notices by each of the two regulators. I’m told both parties got these a week ago. Barclays itself has not been sanctioned, but Staley is being fined by both regulators.

And he gets to keep his job.

If he settles the matter with regulators within 28 days, he will be eligible for the maximum early bird discount of 30%, which sounds like a good thing but is really just a bit less of a bad thing.

Strictly personal, not business

Since the very start of this affair, the bank has been keen to pitch it as a story of personal failing. Staley stuck to that.

“I made a mistake in becoming involved in an issue which I should have left to the business to deal with,” he told shareholders at last year’s AGM.

There was no apparent debate, then, over whether or not he had transgressed in some way. This left two important issues to consider: one, what was his motivation? And two, were the bank’s processes also to blame?

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Jes Staley's integrity has not been questioned
the regulators
We’ll only know the full thinking behind the regulators’ conclusions when their final notices are published, but what’s clear is that the lion’s share of the blame is being cast as individual, not institutional. And here one gets into the niceties of regulatory language. As regards Staley, that blame is specifically associated with a breach of Individual Conduct Rule 2, which demands “due skill, care and diligence”.

They have not said that he is not a fit and proper person to be chief executive, in spite of the fact that competence and capability are among the main assessment criteria for the regulatory test of “fit and proper”.

Perhaps most importantly, his integrity has not been questioned by the regulators. The line from the firm has always been that he committed a mistake in misunderstanding what he was and was not allowed to do, and when.

The final published regulatory findings will doubtless shed light on the background to Staley’s belief that he was free to seek the identity of the whistleblower once he had been told by the bank’s compliance department that the case was closed.

Barclays chairman John McFarlane has been publically supportive of Staley throughout, telling shareholders last year that you don’t lose your licence just because you have driven through a red light. His oddest pronouncement on the affair was his assertion at the same AGM that “as long as he wasn’t successful in identifying the individual, he just made a mistake”. Was that the regulatory view too?

Sound and fury

And so, after all this time spent on what is surely a landmark investigation in the two-year life of the UK’s Senior Managers and Certification Regime, the result is that none of the relevant parties see any real change in circumstances.

Staley loses some money, Barclays has to stay in touch with the regulator a bit more often on whistleblowing, and no one – including the regulators – has to deal with the headache of replacing a UK bank chief executive.

In some ways it’s the anti-Libor result. In that case, the bank and its rivals would argue almost everything was about systems and processes rather than individuals (although, ironically, it was former chief executive Bob Diamond that ended up carrying the can). With the whistleblowing situation, the focus of the enforcement action by the regulators is Staley, not the bank or its processes.

In both cases, that different slant has been to the bank’s benefit. Libor became such a scandal for so many firms that making it institutional rather than about all the individuals who behaved disgracefully suited the industry and gave the situation a helpful abstraction. Whistleblowing is such an emotive area at the moment that to cast something as one man’s understandable failing rather than institutional is better – although surely only marginally, given Staley’s position of responsibility at the firm.

Another sour note continues to be that the board won’t decide how to penalise Staley financially until the regulator has confirmed its penalty. Those at the bank say that the board wants to operate from a position of certainty as to the regulatory conclusions before imposing its own. The less charitable view would be that it smacks of waiting to see how serious the regulator considers this to have been before the bank decides how serious it thinks it is. That may not be the case, but the optics are certainly unfortunate.

The timing of today’s disclosure is also with a purpose. Barclays’ AGM is coming up on May 1 and the bank was keen to get this out ahead of that – it was the bank that released the details today, not the regulators. It’s a mitigation effort. Last year’s meeting was tarnished by this whole episode – shareholder proxy adviser ISS was advising abstention in the vote to approve Staley continuing as chief executive. The bank desperately doesn’t want to be dragged through all that again.

Even before the regulatory announcements today, there were small – perhaps surprising – signs that the tide was turning in Staley’s favour. ISS issued a report to clients on April 13 that recommended shareholders vote this year in favour of keeping Staley on, albeit with “qualified support”.

With the regulator also not pushing him out, Staley’s remaining problem is that the whole thing has made him look like a chump at best and a liability at worst – especially since last year he also fell victim to an email prankster pretending to be his chairman (he wasn’t alone among senior bankers to fall for that, though). A reputation for embarrassments can be hard to shift, can damage morale and send clients running.

Staley has survived, but he will need to recast his image completely on May 1 to show shareholders and clients that the bank has the leadership it needs.