The origins of Barclays’ prosecution by the UK’s Serious Fraud Office lie not in 2008, when the fundraising at the centre of the case actually occurred, but more than 30 years ago when it embarked on its mission to become a universal bank. That mission has defined Barclays’ corporate history ever since, directly or indirectly costing more than one chief executive his career; usually displeasing and only occasionally pleasing shareholders; and frequently worrying regulators — and now ending with criminal charges levelled the company and four senior former executives, including John Varley, a former chief executive.
Universal banks offer a wide range of financial services to corporate and personal customers, including investment banking. Before the Big Bang deregulation of UK banking in 1986, Barclays was just an adventurous retail bank seeking growth in Asia and America to supplement its strong position on the British high street. Big Bang gave it the opportunity to add investment banking to this business and it was an enthusiastic participant in the financial services revolution of the 1980s and 1990s. But after years of poor returns, BZW, Barclays’ investment bank, was drastically chopped back in 1997 and renamed Barclays Capital by the then chief executive Martin Taylor. However, Mr Taylor was not convinced that even with a slimmed down investment bank, Barclays’ ambitions were realistic. He proposed to demerge the retail and investment banks at a stormy board meeting in 1998, but his idea was firmly rejected by the board and he had little option but to resign.
Over the next decade, against the odds and to shareholders’ surprise, Barclays Capital flourished under the charismatic leadership of the American Bob Diamond. By 2006, Barclays had a solid platform from which to achieve universal banking vision, one supported by Mr Varley, chief executive since 2004. The bank was outbid by RBS for the Dutch bank ABN AMRO in 2007, but despite the run on Northern Rock in September 2007 and emerging problems in US credit markets, like most other banks at the time, it saw the dip in asset prices as a buying opportunity rather than the beginning of a crisis.
In the summer of 2008 it raised £4.5bn from investors, including funds linked to the Qatari government, to enable it to seize the anticipated opportunity and this came in September 2008 when it picked up the remnants of the failed US investment bank Lehman Brothers. With a top Wall Street investment bank now alongside its powerful corporate and retail banks, the universal banking jigsaw puzzle was at long last complete.
But the collapse of Lehman proved to be a threat as well as an opportunity. It precipitated the global banking crisis of September and October 2008 and the enforced part-nationalisation of many banks globally, including Lloyds and Royal Bank of Scotland. Barclays came under intense pressure from the UK Treasury also to accept government money. The board feared that the state as a shareholder would not be supportive of its universal banking strategy, was confident it could raise the money from private shareholders and assured the authorities it could survive on its own.
Reluctantly the Treasury accepted Barclays’ position but insisted that it raise capital ratios to prescribed levels. Barclays calculated that it needed to find £12bn to do so through a mix of asset disposals and fresh capital. Existing institutional shareholders told Barclays’ advisers that they would not stump up and in October 2008 the bank turned to Middle East investors for the bulk of a £7.3bn fundraising. Further funds were raised in 2009 through the sale of Barclays Global Investors and Barclays was at long last safe to continue with its cherished strategy.
Barclays now had the money and the business model to become a leading universal bank, but the market had other ideas. The credit crunch turned into a rout and banks all over the world pulled back. In 2012 this led to the downfall of Mr Diamond who had taken over as chief executive from Mr Varley. Mr Diamond’s successor Antony Jenkins, then pared back the bank but he went too far for a board that still retained a grander vision, and he too was ousted. His successor Jes Staley has revived the universal banking strategy, albeit on more realistic lines, but as he looks at the fate of his predecessors, he must be wondering whether Barclays’ universal bank is a dream or a nightmare.
The writer is the author of several books on the City of London and a forthcoming book on Barclays