A year ago, Robert Diamond was in the cockpit of David Cameron’s plane as it landed in London.
As the chartered Virgin Atlantic Airbus A340-300 taxied toward Heathrow airport’s VIP suite at the end of an African trade mission, a crew member joked on the loudspeaker that “Captain Bob Diamond” carried out an “exemplary landing.” Diamond, who was in the jumpseat, commented, “there is really no need to ever grow up.”
The July 19 flight from Lagos, Nigeria, marked a high point of warmth between Cameron’s Conservative government and the financiers he’d aimed to bolster in the aftermath of the banking bailout. Now, with Diamond forced out as Barclays Plc (BARC) chief executive officer after the bank was fined for manipulating interest rates, Cameron is comparing bankers to hustlers and warning against golden parachutes.
“He’s not against banking -- he likes good bankers,” Steven Fielding, professor of politics at Nottingham University, said in an interview. “Unfortunately there don’t seem to be that many good bankers around at the moment.”
Cameron came to office in 2010 promising to reset relations with the finance industry. Under Margaret Thatcher, his Conservative Party created the modern City of London with the 1986 “Big Bang” that introduced electronic trading and deregulation. Instead, the rate-rigging scandal that forced Diamond out July 3 has left Cameron setting up a parliamentary inquiry and saying bankers engaged in “spivvy and probably illegal activity.” A “spiv” is slang for a hustler.
Before he won power in May 2010, Cameron was keen to reassure the City. “My father was a stockbroker, my grandfather was a stockbroker, my great-grandfather was a stockbroker,” he told a 2009 gathering of financiers that included Diamond, according to the Times newspaper.
Hedge-fund executive Stanley Fink and Michael Spencer, CEO of interbank broker ICAP Plc (IAP), helped finance his election as party treasurers.
“The Tories have always had more of a business grounding than Labour,” the main opposition party, Peter Allen, a researcher at the University of London’s Birkbeck College, said in an interview.
Of the Conservatives who first won election in 2010, “13 percent have backgrounds in financial services, and 41 percent are drawn from what’s very broadly described as a business background,” Allen said. “Only 8 percent of Labour members of Parliament are described as having that background.”
That means that 10 percent of all lawmakers are now drawn from the finance industry, compared with 5 percent when Tony Blair won power for Labour in 1997.
Even so, the financial crash and bank rescues of 2008 meant the Conservatives were already moderating their support of bankers when they came to office. George Osborne, then their Treasury spokesman and now chancellor of the exchequer, said in 2009 the U.K. should look at whether it needed “smaller banks.”
In June 2010, a month after taking office, he appointed a panel led by John Vickers that last year recommended setting up firewalls between retail and investment banking. The proposal will be introduced in Parliament next year.
Still, in 2010, Cameron’s rhetoric toward banks was low- key. He urged them to lend more to businesses and pay lower bonuses. His government introduced a levy on banks as it raised taxes and cut spending in its first budget.
At the start of 2011, Cameron was still trying to assuage taxpayers over the near-collapse of banks that led to the government takeover of Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc. (LLOY)
“I want to make sure the bonuses go down, the lending goes up, and I want to maximize the amount of tax they pay,” he said. “We’ve got to work for the balance, rather than just say let’s get revenge on these people, they’ve made us mad as hell.”
Bankers became a more tempting target for Cameron as his own popularity declined amid the fallout from the phone-hacking investigation into Rupert Murdoch’s News Corp. (NWSA:US) and a double-dip recession. A ComRes Ltd. poll conducted June 29 to July 1 found only 10 percent of adults saying they trusted bankers to tell the truth -- the same number as said they trusted politicians.
In January, Labour introduced a motion calling on Stephen Hester, chief executive of RBS, to waive his bonus. With a majority in Parliament, Cameron, who was said by an aide to fear Hester would quit, could have won the vote. Even so, Hester said he’d turn the money down. The next day, at Cameron’s instigation, former Hester’s predecessor, Fred Goodwin, was stripped of his knighthood.
Cameron’s approach to Diamond was similarly incremental.
After Barclays agreed to a record 290 million-pound ($450 million) fine for rigging the London interbank offered rate, a global benchmark, Cameron initially said it was a matter for regulators.
A day later, Cameron stepped up his rhetoric, telling reporters in northern England that “the Barclays management team have some big questions to answer.”
Later that day, after arriving in Brussels for a European Union summit, he further toughened his message. “People have to take responsibility for the actions and show how they’re going to be accountable for those actions,” he said. “It’s very important that goes all the way to the top of the organization.” A U.K. official, speaking on condition of anonymity, later said the prime minister thought Diamond specifically had questions to answer.
Five days later, Diamond was out and Cameron and Osborne had turned their fire toward Labour in a successful bid to limit the scope of the inquiry.
Finance “is an incredibly important industry,” Osborne said. “It’s Britain’s largest private-sector employer. What we don’t need is its reputation tarnished, navel-gazing over these scandals. We know what went wrong, now we’ve got to fix it.”
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