) Europe and Asia fixed-income trading business. But he found his calling in 1996 when he was recruited to reverse the fortunes of the floundering investment banking wing, then known as BZW, of Barclays PLC (BCS
), one of Britain's largest banks.
Diamond survived the turmoil unleashed by the restructuring of the investment bank, and went on to forge its successor, Barclays Capital, into a world-class fixed-income player. Last year he also took on the additional title of president of the parent company. He recently talked in his Canary Wharf office to BusinessWeek's, London bureau chief, Stanley Reed. Edited excerpts from their conversation follow:
How did you get started on Wall Street?
After business school, I took a job at a company called U.S. Surgical. I worked for a guy who is still a good friend, named Bill Cook, the head of administration. After two years, Bill Cook was hired by Morgan Stanley, in 1979. That was just when Morgan Stanley was moving from a pure advisory firm into secondary sales and trading. They needed someone to build all the IT and systems. Bill was hired for that, and he asked me join him.
After a year as assistant to the CFO, I took a job on the fixed-income floor. It would be a bit excessive to say I fell in love with the markets. But given my personality, that's not far off. Although the markets are harsh, they are a very, very fair judge of what you do. I played sports throughout high school and some college, and I enjoy the competitive aspects. I also enjoy the fairness where we are all in competition with the same information and where the guy who works hardest or works smartest wins.
As long as the coach puts them out there...
That's a very good point. Markets are very fair, but who gets a shot is not necessarily fair. Some of the things that make me most proud of this organization is the meritocracy -- the feeling that we really put a lot of time and a lot of process into giving all people an equal shot and measuring them based on how they perform -- not who they know or how long they have been here or what connections they have.
I made a decision in early 1996 to leave Credit Suisse First Boston (CTNX
). What was intriguing to me about the discussions I had with Martin Taylor (then-CEO of Barclays PLC) were that I believed very strongly in the single currency. It was going to be a reality -- and change the balance of power between Europe and the U.S. The second thing was that [the] Glass-Steagall [law separating commercial and investment banking] was eroding. Frankly, European and British banks were more comfortable with the universal banking, integrated model and would benefit big-time by that shift.
You found yourself in a pretty tough situation.
It was clear pretty quickly that the all-singing, all-dancing, U.S. bulge-bracket lookalike model was unsustainable. I knew it had to change, and Martin knew it had to change. But it was very important that we restructure quietly as opposed to announcing to the market that were going to sell M&A and equities. Frankly, that ended up hurting the organization, because we didn't get the price we should have gotten for it, and it created a lot of internal drama. What was happening was that at the parts of the business that were for sale, everyone was out interviewing; no one was working.
How was the decision to sell made?
There were always four choices. One, ignore all these problems and just keep going. I wasn't going to be part of that, because it simply wasn't sustainable.
The second was to buy an U.S. firm. My feeling was that Barclays couldn't manage that integration at that time, and, frankly, the success rates of deals in investment banking are very poor. The third option was to sell everything, but to sell the entire organization would be ludicrous because we would be selling our access to clients and the capital markets. The fourth view, which I supported, was to dramatically restructure and take advantage of the fact that we are Barclays and that we are European. We have one of the world's best brands, AA+ credit rating, and a huge balance sheet. Take advantage of being in [Britain] and European time zones, and create a structure that we know will work.
That was the beginning of financing and risk management. We don't have to compete with the U.S. firms in M&A. We don't have to have a large-scale cash equity business, where the model doesn't work and where one after another foreign firm and one after another U.S. firm went through the same thing -- trying and failing to mimic the U.S bulge-bracket firms. It was pouring good money after bad.
Why is the business working so well now?
The model of investment banking has changed radically to a more integrated model. It is the best of commercial banking and the best of investment banking. It is not just Barcap any more, but UBS (UBS
), BNP Paribas, JP Morgan (JPM
), Citigroup (C
) -- most of the successful firms now have the integrated model. Goldman (GS
), too, has changed its model as a result of not doing a deal with a bank, which would have allowed it to adopt an integrated model.
The best example I can give you is virtually any league table of capital raising for corporates: Ten years ago, Goldman, Merrill, and Morgan Stanley would dominate. Now the top players are Deutsche Bank (DB
), Barclays Capital, JP Morgan, Citigroup -- all universal banks. Goldman is not even in the top 15. That doesn't mean it is not a great firm, but the model has changed.
So the direction of interest rates doesn't matter that much?
Our business is risk management. If you look at our results with value at risk down, corporate issuance down, and the yield curve trade gone, you would say, "How the hell did you drive up revenues?" The answer is what we have been preaching: relentless, rigorous focus on clients around risk management. If you are a German car manufacturer selling in the U.S., your exposure to the dollar is enormous. You may need to hedge your income. You may need to hedge the price of steel. If you are an airline you have a massive exposure to the price of fuel. All of the large corporates now manufacture in multiple locations. They have people in multiple locations. They sell in multiple locations. They have exposure to a multiplicity of risks, which they have to manage.
When you try to fix a business, what is your approach?
The thing that is most important of all is being very clear about the strategy and keeping it pretty simple. Once that is established, you need to make the tough decisions and implement them quickly. My style has been to spend an awful lot of time with the business until I have tremendous confidence that I have the right people, who understand the plan. At that point, it is equally important to step away and delegate.