The gathering of Barclays investors at the Queen Elizabeth II Conference Centre in Westminster on 23 April was inevitably a strange affair. At one and the same time, the bank has managed both to infuriate its investors and to win their admiration.
The patrician leadership of the bank, headed by the former dealmaker Marcus Agius (married to a Rothschild) and John Varley (who married into one of the Barclays-founding Quaker families), has fought with tooth and claw, as the credit crisis descended on the financial system, to keep HM Treasury off its back. While Lloyds Banking Group (the old Lloyds TSB plus HBOS) and Royal Bank of Scotland (RBS) have allowed themselves to fall under direct rule from UK Financial Investments – the arm of government set up to own shares in the semi-nationalised banks – Barclays chose a different direction. It has been a case of taking money from anyone, at any price, as long as the interference from Labour and Whitehall can be kept at bay.
The anger from long-term Barclays shareholders (the pension funds and insurance giants who dominate investment decisions in the City of London) stems from last October’s decision by Barclays to eschew an injection of cash from HMG to solidify its crumbling balance sheet, and to look overseas instead. Using a rum collection of intermediaries, including the glamorous financier Amanda Staveley (a former girlfriend of the Duke of York), it secured for itself £7.3bn of new capital from the ruling royals in the Gulf statelets of Abu Dhabi and Qatar. It paid an enormous price for this injection of funds, some 14 per cent at a time when official interest rates are close to zero, and in effect gave away 15.5 per cent of the bank to new investors without first asking the permission of the existing owners, the long-term City investors. It was this abandonment of so called “pre-emption rights” that cast Agius and Varley as the City bad boys who should be excluded from class. So great was the anger that the Barclays board had to reopen the fundraising, offering shares to existing investors on similar terms and promising that the bank’s directors would submit their appointment to an annual vote of approval by shareholders. This was a big extension of normal shareholder democracy.
So why did Barclays go to so much trouble to preserve its independence? It was partly about pride and partly about ambition. Barclays is unique among the big names on the high street. The bank, which traces its history on Lombard Street back to the late 17th century, was formed as a result of a series of mergers a century later, which brought together banks from the English regions controlled by wealthy Quaker families.
Even though the founders have very few shares in the modern bank, somehow over the centuries, members of the extended families have managed to pop up in the top jobs. John Varley, the quintessential English solicitor who currently holds the job of chief executive, just so happens to be married to Carolyn Thorn Pease, a descendent of one of the founding Barclays dynasties. It used to be said that in the chairman’s office at Barclays, there was a secret register that monitored the progress of family members through the bank and fast-tracked their progress. Whatever the truth, this legacy – in which Quaker names such as Tuke, Pease and Buxton, crop up over the years – is decidedly different from that of the other high street banks.
Few bankers are so gripped by history as Varley. His predecessors were forced to retreat from apartheid South Africa in 1986, where Barclays was among the biggest players, by a combination of sanctions and shareholder activism. But when the opportunity to return presented itself nearly two decades later, Varley grabbed it with both hands, spending £2.9bn in 2005 on buying Absa, the biggest retail bank in the country. The honour of his predecessors had been restored.
The second big difference and reason for Barclays wanting to stay independent is its embrace of a US-style investment banking culture. Much of the current debate about the future of banking has been whether there should be new rules that prevent old-style Captain Mainwaring bankers joining up with the “casino” bankers who caused the credit crunch. More than any other UK bank, Barclays is a combination of both.
Barclays Capital, run by Bob Diamond who pocketed a £21m salary in 2007, embraced casino banking with great zeal, turning BarCap into a powerhouse of the debt and bond markets. Indeed, it is one of the biggest players in the securitised debt market – the slicing, dicing and packaging of loans at the heart of the credit crisis. This involvement in securitised debt, including sub-prime mortgages, has cast a large shadow over Barclays, which always claims that the mortgage debt it holds is of a “better vintage” than that of its rivals.
But Diamond’s ambitions are without limit and he has seen the credit crunch as an opportunity rather than a drag on the bank’s activities. When Lehman Brothers went under last September, BarCap saw it as an opportunity and moved to buy up Lehman’s New York staff and offices at a knockdown price.
In more recent days, Barclays has been studying whether it, like RBS and Lloyds, should become part of Alistair Darling’s insurance plan for banks: the “asset protection scheme”. Under this insurance policy, the Treasury essentially takes the toxic or bad debts off bank balance sheets in exchange for a premium. Barclays looked carefully at the plan and decided that, if it did so, it would lose the freedom to lend to whom it wants, and perhaps, as importantly, set its own wages and bonuses for staff. So it has decided to stay out and soldier on.
Once again, it has chosen to sell assets to raise the capital it needs to stay independent – on this occasion iShares, part of its investment arm. It will almost certainly mean higher losses in the short term since, unlike the banks with insured toxic debts, Barclays will have to take the direct hit through its profit and loss account.
No one wants to see the return of the bad old days when bankers ran riot. But it is hard not to have a sneaking admiration for Agius, Varley and Diamond. They place the independence of their bank above all else, and are determined not to cast off three centuries of history. It’s a bold gamble that sets Barclays apart from the crowd.
Alex Brummer is City editor of the Daily Mail