The Deal Economy 2013

Home | Event | Blog | Awards

Print | Share | Discuss | Reprint

The City and Robert Diamond

by Robert Teitelman | Published July 6, 2012 at 11:47 AM

Imagine an entire nation getting enraged over the London interbank offered rate, or LIBOR -- and that in a year when there were so many other tempests in Britain (Hackergate, the Olympics, the euro zone, the crappy economy). The LIBOR contretemps, which will undoubtedly visit our shores soon, is a little mysterious for Americans. One of those puzzles, by the way, is not the fact, or seriousness, of the scandal itself; anyone paying attention first heard of skullduggery in the setting of rates in 2008, followed by fumbling efforts by the British Bankers' Association to reform a process redolent of the smoke-bound, port-infused City of the 19th century. LIBOR is big; and it's pretty apparent it was overtly manipulated, so hammer away at offending banks and bankers (it was not a cause of the crisis, of course, except for those who believe that bankerly immorality was behind everything). No, what's baffling is the sheer venom rained down upon a lone American (who's taken out British citizenship) in the form of Barclay's Robert Diamond. Again, this isn't a matter of Diamond getting canned, or even that Brits don't like his salary or his mouth. But the reaction to Diamond, who dragged Barclays into the 21st century, managed to avoid taking government money in the crisis, built just about the only global financial institution in London not owned by foreigners and settled first on the LIBOR mess, seems, well, excessive.

I mean he's not Rupert Murdoch.

Nonetheless, consider Philip Stephens in today's Financial Times: "Mr. Diamond was once the poster boy for London's claim to be the world's financial hub. When he packed up his desk this week, politicians and, I would guess, most of the nation cheered. David Cameron spoke of 'appalling and outrageous' behavior. George Osborne, the chancellor, said Mr. Diamond's departure was good for Barclays and good for the country. Britain could now rediscover 'a culture of responsibility.' What's been happening here is a much-needed reassessment of acceptable standards of behavior? You could say that economic austerity has ushered in a national process of truth and reconciliation -- only we have some way yet to go before the reconciliation part. ...

"As for the banks, Mr. Diamond's exit provides an opportunity for a real change in the culture and practices of the City. Profits and probity need not be mutually exclusive."

We need not go into the details of politicians deeply mired in the hacking scandals discussing "appalling and outrageous" behavior and a "culture of responsibility." We also needn't go into the reality that whatever happened with LIBOR involved a consensus of big banks, including British ones, some of which are now owned by the government. We also won't delve into the absurdity of comparing these manipulations, which appear to have had some wink-wink forbearance from regulators, to crimes against humanity, which would make Diamond into a kind of Pinochet. And we won't speculate without facts as to whether LIBOR has been manipulated in the past, though there are suggestions that that might have been the case. Was Diamond so towering a figure that his removal will usher in a new era? It's an easy thing to say that profits and probity aren't mutually exclusive in a newspaper column; it's another thing to execute that in a very complicated, ambiguous real world.

What's worth pondering is where the Brits believe this will take them. It's a question that also bedevils the U.S., with one very large difference: London as a financial center and banking as a business loom much larger in Britain than they do in the bigger and far more diverse U.S. economy. Barclays will easily survive the departure of Diamond; no one is indispensable, and the fact that he was American doesn't really mean much. Before Brits blamed everything on Diamond, they blamed everything they didn't like in the evolving financial culture on Goldman, Sachs & Co. Goldman was a tabloid pariah in London long before Matt Taibbi came along; it was also dominant. And the roots of that antagonism, much of it embodied in the freewheeling, highly compensated American style, was the post-Big Bang takeover of the British financial sector by foreigners, mostly Americans and Swiss (the parallels to Murdoch's media takeovers is obvious). Like the post-1975 transformation of Wall Street, this new global financial regime, with big and increasingly speculative global institutions, requires a sophisticated and discerning perspective to sort out good and bad. But part of the "good" (depending on your perspective) was very clearly the consolidation of New York and London as financial centers, providing employment, taxes, liquidity and a general uplift to the local economy. This was particularly important in Britain, as the Thatcher policy of open markets, continued through Tony Blair to the present, saw any number of iconic British corporations taken over by foreign companies.

Throughout all these debates about banking, there is a willful nostalgia about the financial past. Even Ebenezer Scrooge sees the light. There is one large truth here: In the age of partnerships and smaller banks, too-big-to-fail was far less of a serious problem, though in the 19th-century bank collapses like Barings managed to trigger worldwide contractions. But that era before the rise of the big universal banks was characterized, both in New York and certainly in London, by closed, clubby, class- and ethnic-based cartels, resistant to change, hidebound in terms of processes and technologies, and with an oily corruption all their own. Much of old Wall Street collapsed in the back-office disaster of the '70s, having failed to invest in new technology. Ancient British firms were swept away after Big Bang not because foreign firms were so rapacious or so amoral; but because they were inefficient and uncompetitive, and because their partners saw the opportunity to cash out.

Again, what is the vision of a new City of London in which the reckless, the greedy and the speculators have been banished from the temple? How would you regulate this Great Awakening of financial integrity? How would you reshape the banks, in terms of size or speculation, or spawn a different culture and better behavior? Talk is cheap. And banishing a lone American might make the people cheer, but it's unlikely to get the job done. - Robert Teitelman

Share:

blog comments powered by Disqus

Free preview

This is only a preview of The Deal's sophisticated coverage. Explore the real-time intelligence as researched and reported on by our team of financial journalists with a license to The Deal Pipeline. Click here for more information.

Meet the journalists

Robert Teitelman

Editor in chief

Bob Teitelman, editor in chief and a member of the company’s executive committee, is responsible for editorial operations of print and electronic products. Contact

Movers & Shakers

Goldman, Sachs & Co. veteran Tracy Caliendo will join Bank of America Merrill Lynch in September as a managing director and head of Americas equity hedge fund services. For other updates launch today's Movers & shakers slideshow.

Video

Fewer deals despite discount debt

When will companies stop refinancing and jump back into M&A? More video

Free preview

Editor in chief

Movers & Shakers

Sectors