– The wrecking of Barclays is organised looting by those at the very top (Guardian, July 9, 2012):
You’d have learned precious little from watching Bob Diamond in parliament last week – apart, that is, from his love for his former employer. If pressed, you or I might admit to tolerating our jobs, to getting on with colleagues or, at the very least, to taking full advantage of the company stationery supplies. For the multimillionaire banker, however, this would be mere watery equivocation. The firm that had forced him out just the day before was “an amazing place”, packed with “wonderful people”. And, he told MPs over and over: “I love Barclays.”
Sadly, no one asked the obvious follow-up: if that’s how you treat organisations you admire, what on earth becomes of the ones you dislike? Because since arriving in 1996, Diamond has debased what was a venerable, Quaker-founded high-street institution into something else entirely: a financially precarious outfit with a reputation for dodging taxes and fixing interest rates.
This transformation hasn’t helped the Treasury, which is now forced to chase the bank for taxes. It has harmed credit-starved firms, because Barclays now sticks them at the back of the queue for loans. It is even bad for your pension fund, since the company’s insecure finances means it no longer makes good returns for shareholders. In fact, the biggest winners from the metamorphosis of Barclays have been Diamond and his investment bankers who – even this year, amid global financial turmoil – took home multimillion-pound bonuses.
If this were a tale involving just a single boutique bank, you could chalk it up as a dreadful shame. But the story of how one of Britain’s biggest businesses has effectively been wrecked largely to enrich a few hundred of its elite employees is so much bigger than that. Not just in scale, but also for the larger picture it suggests of what has happened in Britain over the past few decades: how the people at the top of some of our biggest businesses have used their positions to extract money, rather than earn it, and how politicians and regulators have connived at this organised looting.
All this goes against Barclays’ official history: of how a second-division bank has risen within Diamond’s decade-and-a-half to join the international premier league. But what this story misses out is just how shaky the enterprise looks. In a new paper called The Madness of Barclays, the Centre for Socio-Cultural Research (Cresc) at Manchester University crunches through the company’s accounts. What they find is a giant, risky trading arm – the Barclays Capital that Diamond created – joined on to a safe, steady high-street banking business. Importantly, that second business is supported by an implicit government guarantee, that protects its savers.
The BarCap trading arm generated just over half of the company’s pre-tax income but it also carries £1.8tn in gross credit risk more than the UK’s entire annual income. To be fair, the bank has done its bit to reduce the risk of that exposure, but the bulk of it lies with derivatives – and the majority of those derivatives are tied to double-dip Britain and crisis-hit Europe. You make up your own mind how safe those are if even one of the doomsday eurozone scenarios regularly floated in the papers comes true.
I have spelled all that out to make an obvious point: the British state, through its implicit guarantee of Barclays’ high-street business, is allowing the company that Diamond created to run an enormous credit risk that could sink the entire country. You usually see BarCap’s activities described as casino banking, but it’s a funny kind of casino where the players don’t put any of their money up. With all its taxpayer backing, BarCap looks less a casino and more like a creamery.
Except the fat cats are very small in number. Barclays has around 140,000 staff – and most of them never see the sort of huge payouts that you usually read about. You probably knew that, but what you might not have realised is just how small a group actually gets the rewards. But look at the last company report: 238 employees are identified as “code staff”, 90% of them from BarCap. The code staff took a total of £1.01bn home, or £4.27m each. Compare that with the mere £113m the bank paid in corporation tax in 2009.
Defending the bankers, Boris Johnson wrote in yesterday’s Daily Telegraph that we needed them to lend money to the Apples and Microsofts of tomorrow. But that’s not what Barclays does, either. Of its loans last year, a little more than 7% went to businesses in wholesale, retail or manufacturing. Nearly a third went to other banks.
Yet, as Johnson reminds you, Barclays is the bank that – up until the Lie-bor scandal – got applauded no matter what it did. Its former chief executive, John Varley, was even in the running to replace Mervyn King as head of the Bank of England. And a few months ago, David Cameron attacked what he called the “dangerous rhetoric … that people in business are out for themselves. We’ve got to fight this mood with all we’ve got.” And he singled out Barclays for praise for running a large work-experience scheme. The very next week, his Treasury minister demanded the bank close tax-avoidance schemes worth more than £500m.