Robert Diamond, the architect of Barclays Plc (BARC)’s investment banking expansion, resigned as chief executive officer, succumbing to political pressure to go after the bank admitted to rigging global interest rates.
Diamond, 60, will leave immediately, the London-based bank said in a statement today, a day before he faces questions by British lawmakers. Chief Operating Officer Jerry Del Missier also stepped down, while Marcus Agius, who said yesterday he planned to resign, will become full-time chairman and lead the search for a new CEO.
Barclays was hit by a record 290 million-pound ($455 million) fine last week for rigging the benchmark for more than $360 trillion of securities. Diamond had yesterday defied pressure to quit, pledging to implement the findings of a review into how the bank sets the London interbank offered rate. U.K. regulators are weighing whether to start criminal probe into Libor-fixing.
“Diamond’s position had clearly become untenable,” said Gary Greenwood, a banking analyst at Shore Capital in London. “While the company says that it will consider internal and external candidates to fill the role of CEO, we believe that it is of paramount importance that an external appointment is made in order to clean up the image of the company.”
Diamond became CEO of Barclays on Jan. 1, 2011 after joining the bank in 1996.
The stock pared gains of as much as 4.8 percent and was up 1.7 percent to 171.25 pence at 2:45 p.m. in London trading, giving the company a market value of about 21 billion pounds.
“There comes a point in time when the board says enough is enough and it became very personal in terms of the criticism,” said Christopher Wheeler, a London-based banking analyst at Mediobanca SpA. “It allows the bank to draw a line. The priority now is to find an appropriate chief executive who has not been affected by all this.”
Agius, who said when he resigned that he would remain in place as chairman until a successor could be found, will lead the search for a replacement for Diamond. Agius’s plans to leave eventually are unchanged, Barclays said.
Diamond and Agius are the industry’s most senior executives to announce their departures following the probes. Diamond had already come under fire from politicians for his background in investment banking and his compensation.
“The external pressure placed on Barclays has reached a level that risks damaging the franchise,” Diamond said in the statement. “I cannot let that happen. I am deeply disappointed that the impression created by the events announced last week about what Barclays and its people stand for could not be further from the truth.”
The shares plunged 16 percent on June 28 on speculation Barclays could face billions of dollars in lawsuits. U.S. and U.K. regulators said traders at the U.K.’s second-biggest bank by assets routinely coordinated with counterparts from at least four other lenders in an attempt to move Libor and other benchmarks.
Diamond stepped down a day after the government announced a parliamentary inquiry into the U.K. banking industry. He is due to be questioned by British lawmakers on the Treasury Select Committee tomorrow. Chancellor of the Exchequer George Osborne welcomed Diamond’s resignation, telling BBC Radio 4 today he hoped it would be the first step towards a “new culture of responsibility” in British banking.
“I think after everyone went home Bob thought, there’s gigantic pressure on the organization, and I’m a lightning rod,” said Leigh Bruce, a Barclays spokesman in London. “Bob decided that this could become a distraction and the best thing for the bank and the franchise and everybody was for him to step aside and let the bank go forward.”
U.K. and U.S. regulators found Barclays “systematically” attempted to rig the London and euro interbank offered rates for profit. Libor, which is determined by 18 banks’ daily estimates of how much it would cost them to borrow from one another for different time frames and in different currencies, is the benchmark for more than $360 trillion of securities, including mortgages, student loans and swaps.
“I don’t think anybody should underestimate the seriousness of this,” said Dominic Rossi, chief investment officer for equities at Fidelity Worldwide Investments, one of Barclays’s 10 biggest shareholders.
Diamond, Del Missier and Rich Ricci, who runs corporate and investment banking, will all forgo their bonuses this year.
Diamond ran the London-based bank’s securities unit when the Libor manipulation occurred. He lost the contest for the CEO post to John Varley in 2003 and became president of the bank in 2005. He stayed, and by 2007, his Barclays Capital unit accounted for 31 percent of pretax profit. Varley stepped down in 2010, clearing the way for Diamond to replace him.
The Massachusetts-born Boston Red Sox fan began his career as a lecturer at the University of Connecticut in 1976 and has also held roles at Credit Suisse First Boston in Tokyo and New York and Morgan Stanley.
In 2007, Diamond and Varley lost the takeover battle for ABN Amro Holding NV to a group led by Royal Bank of Scotland Group Plc. The takeover of the Dutch lender eventually forced RBS to seek a government bailout.
A year later, Diamond struck a deal to buy the North American investment-banking business of bankrupt Lehman Brothers Holdings Inc. for $1.75 billion. He then embarked on a hiring spree to expand the investment banking unit, adding stock underwriting and merger advisory businesses and bankers in Europe and Asia to match its U.S. standing.
“I joined Barclays 16 years ago because I saw an opportunity to build a world-class investment banking business,” Diamond said in today’s statement. “We built world class businesses together and added our own distinctive chapter to the long and proud history of Barclays.”
Diamond was branded the “unacceptable face of banking” by then-Business Secretary Peter Mandelson in 2010 over his compensation. His 12 million-pound remuneration, including a 5.75 million-pound payment toward his personal tax bill last year, made him Britain’s top-paid bank CEO. In January 2011 he told Parliamentarians that the time for “remorse and apology” for banks needed to be over, prompting political outcry.
“Diamond is an out-and-out American investment banker,” said Chris Roebuck, a visiting professor at London’s Cass Business School. “He says what he thinks and he drives hard to maximize the performance of his bank. That combination isn’t necessarily what fits with the British approach to things. As a result, he has a tendency to upset people.”
As of Dec. 31, Diamond owned 13.2 million shares, valued at about 22.5 million pounds, according to the lender’s annual report. Under his contract terms he is entitled to 12 months’ salary, medical and pension benefits as compensation for loss of office, the report says. Diamond’s pension contributions and salary were valued at 2.03 million pounds, the report said.
A Barclays spokesman declined to immediately comment on his severance package or whether his resignation would qualify as loss of office.
His tenure as CEO has been marred by disputes with regulators, some of which he inherited from his predecessors: the first was over the mis-selling of payment-protection insurance to customers, the second over tax-avoidance plans the Treasury described as “abusive,” and the third over improper sales of derivatives to customers.
At the same time, Diamond regularly called on banks to be more “effective citizens.”
His departure may stoke speculation the lender may divide its consumer and investment banking operations.
“The problem is the bank is so big,” said John Smith, a senior fund manager at Brown Shipley & Co., which manages 2.3 billion pounds including Barclays shares. “It’s getting beyond making money for themselves. You’re taking risks with the U.K. economy, people’s savings, and not just shareholders’ capital.”
After taking over as CEO in 2011, Diamond vowed to boost Barclays’ return on equity, a profitability measure, to 13 percent. The measure stood at 6.6 percent at the end of the year. The stock has sunk more than 30 percent since Diamond took over in January 2011.
Net income for 2011 fell to 3 billion pounds from 3.56 billion pounds in the year-earlier period as investment banking revenue shrank.
“No-one seems to be looking at operational performance anymore, but this is exactly the opposite of what the group needs when there is very significant reshaping that needs to be done,” said Ian Gordon, an analyst at Investec in London.
To contact the reporters on this story: Ambereen Choudhury in London at email@example.com; Liam Vaughan in London at firstname.lastname@example.org.
To contact the editor responsible for this story: Edward Evans at email@example.com