BARCLAYS executives have privately dismissed the idea that UK banks will be forced to break up their retail and investment banking operations, even though the government’s independent banking commission still has a year left to deliberate its options.
Those close to the bank said yesterday that Barclays would not have appointed its investment banking chief Bob Diamond to head the group if the board were not confident that the commission will “stop short of recommending a full break-up”.
“The more people think about it, the more problematic it is,” said one source. “It doesn’t make sense to send a wrecking ball to smash into one of the only businesses the UK has which are competitive on a global scale.”
The commission, chaired by former Office of Fair Trading boss Sir John Vickers, was appointed by chancellor George Osborne after the general election to investigate the best “size, scale and function” of banks in the future.
Concerns among the banks has focused primarily on the possibility that the commission will bring in a British version of the now-defunct Glass Steagall Act, separating their retail and investment arms – a move many say would force some of the most successful banks, such as Barclays and HSBC, to seriously consider moving their headquarters overseas.
Yesterday, business secretary Vince Cable appeared to tone down his insistence on a full break-up of the banks, saying only that the appointment of Diamond to replace John Varley as Barclays chief executive made it imperative that the commission carefully consider its “options”.
The Banking Act of last year has already forced the UK’s banks to ringfence retail deposits from future failures, addressing a key argument against having retail and investment operations under one roof.
Another alternative to a full break-up would be to introduce the subsidiarisation of banks’ riskiest assets, parking them in separate companies which are capitalised separately from the group as a whole.
However, the confidence of Barclays, chaired by former investment banker Marcus Agius, in a conclusion in favour of the universal banking model may needle members of the commission who feel that the investigatory process has yet to get fully underway.
Vickers has until next September to produce a final report to the government on his findings. He is supported on the commission by Martin Taylor, himself a former chief executive of Barclays; Claire Spottiswoode, the ex-head of gas regulator Ofgas; JP Morgan’s former co-head of investment banking Bill Winters; and FT columnist Martin Wolf.
Meanwhile, Barclays Capital yesterday hired former CIT Group chairman and chief executive Jeffrey Peek as vice chairman of its investment-banking division following Diamond’s promotion.