It's Time for Investors, Banking System to Move On

Published on February 19, 2009

Counterparty risk is no longer a critical issue for major banks that received government funds in recent months, said Bob Diamond, CEO of Barcap, Barclays investment banking business. “I think it’s managed,” Diamond said.

Diamond made his comments during a fireside chat with dean Edward Snyder as part of the Distinguished Speaker Series, sponsored by the student-led Graduate Business Council, at Harper Center on February 19.

Legislators, regulators, and banks are all participating in the “bailout” of the world’s financial system to restore liquidity, confidence, and the movement of transactions. Diamond said he is especially frustrated when observers do not separate the winners from the losers in the recovery process.

“One of the complicating factors is that a number of banks have become challenged and have a majority or significant amount of government ownership,” he said. “Barclays has weathered this, stayed profitable, and has its risks under control, and its businesses are positive. We need to recognize that all banks are not the same and that all risk, management talent, and business models are not generic.”

Banks that fail because of execution or because of their models must be allowed to fail in a controlled way and consolidate with other organizations, Diamond said. During the current crisis, Barclays acquisition of a portion of Lehman Brothers is the only strategic transaction in financial services that has occurred without government intervention, he said.

“So far we’ve seen precious little non governmental strategic activity,” Diamond said. “We’ve seen government intervention that has combined banks. That is healthy and we need to allow that to move on,”

Diamond said he takes the currently negative public image of bankers in stride and has learned to turn off his Blackberry and telephone on weekends. “That’s just something to work through,” he said. “As with anything, there are good bankers and bad bankers. There isn’t a banker alive who isn’t clear that they’ve made mistakes. This is about learning from the mistakes of too much leverage in the system and too much subprime on the balance sheet.”

On other hand, Diamond said he would not trade anything for his seat at the table as part of this “living history,” in particular meeting with then-U.S. Treasury Secretary Henry Paulson to discuss Barclays proposed purchase of Lehman Brothers. “It was an incredible professional experience,” he said. “It was the ability to have a team around me that could stay very focused in the worst environment our industry has ever had. I believe that deal will be seen as probably one of the best transactions ever.”

One of the key components of Diamond’s talk was his ability to find the silver lining in the current financial markets, said second-year student Marina Vasjukova. “He repeated several times that he is an optimist,” Vasjukova said. “Even in this situation, he actually sees the opportunities which given the market performance since his speech were insightful. Barclays had the opportunity to buy all of Lehman, but following its callapse it was able to buy part of it.”

                                                                                                                    — Phil Rockrohr

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