Why rivals are banking on Diamond’s downfall

David Hellier
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Whenever a banking scandal breaks in the City, be it rogue trade allegations at UBS, a massive trading loss at JP Morgan or the current Libor interest rates scandal, the first concern is for the reputation of the industry as a whole. But, investment bankers being possibly the most competitive bunch on the universe, the conversation very rapidly turns to what sort of an advantage one group can take from another’s woes.

The current turmoil surrounding Barclays and its chief executive Bob Diamond is no different. Within hours of the news about the Libor scandal being made public, bankers were casting an eye at the clients of Barclays’ investment bank.

The rise of Barclays’ investment banking arm in the advisory sector of mergers and acquisitions and equity capital markets has been one of the most significant investment banking developments of the last few years.

Barclays was the only UK-based bank to get an advisory role on the Facebook float; the bank is constantly pitching to be broker to FTSE 100 companies and has won quite a few of them, such as IAG, the parent of British Airways; and it even muscled in as an adviser to the year’s largest merger of the year, the on-off deal between Glencore and Xstrata. In terms of recruiting, it has hired some of the biggest names in the London market, such as former Bank of America Merrill Lynch stars Mark Astaire, soon to arrive, and Richard Taylor, now the bank’s head of investment banking, UK & Ireland; Jim Renwick, once of UBS; and Alisdair Gayne from Morgan Stanley. In reality, as much as the more established investment banks might scoff, it is in danger of being a real threat in advisory.

There is widespread belief in the market that the driving force behind the march of the investment bank’s equity business (it has for a long time been a force in debt and fixed interest) is the personality and ambition of Bob Diamond.

With the purchase of Lehman’s US business and the constant hiring elsewhere in the group, Diamond has thrown the bank’s weight behind this initiative even when investment banking has been seen as unfashionable, risky and at a time when business volumes are at a low ebb. One rival said yesterday: “We’ve lost a couple of pitches recently to Barclays and on both occasions the potential client said that Bob was all over them, telling them what Barclays could do for them in terms of lending and other services.”

In other words, Diamond is absolutely wedded to the idea of the integrated investment bank, using relationships in one arm to foster business in another.

This being the world that it is, and with Barclay Capital standing around fifth place in most league tables when it wasn’t even in the top ten a few years ago, rival investment bankers are hoping that even if Diamond isn’t forced out over the Libor scandal he will be sufficiently weakened to slow his group’s relentless pursuit of a top table place in the world of investment banking.