Barclays should not dally in replacing Bob Diamond

http://www.guardian.co.uk/business/blog/2012/jul/16/barclays-replacing-bob-diamond

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As Barclays seeks a successor for Bob Diamond, who has quit over the Libor scandal, it is worth remembering that the bank has been in this situation before. It was without a boss for around a year when Martin Taylor quit in a row over strategy in late 1998.

Analysts at UBS note that during that period, the bank performed well, with profits in the retail bank rising 16%.

But they also warn that this should not be a reason for Barclays to dally when appointing a new chief executive. The makeup of the business has changed dramatically in the intervening years, from 10% of profits being derived from investment banking to 50% now.

Crucially, the investment bank has been the main driver of profits in the bank which reached £6bn last year – double that of 1999.

"In our view while Barclays had the luxury of time to find an appropriate CEO in 1999 the dramatic shift in the nature of the business since then means that this no longer applies," the UBS analysts argue.

They also conclude that whoever succeeds Diamond will need investment banking experience and on the basis of their analysis, the UBS analysts say Nagiub Kheraj, a former Barclays finance director and current part-time chairman of the bank, scores most highly.

There is a big task at hand. In 1999 the return on equity – a key measure of shareholder return – was 20.5%. Last year it was 7.5% – half the 13% target that Diamond had set. This is largely because while the investment bank has grown, the returns have gone to staff rather than shareholders. "We would expect a reassessment of both the quantum and the structure of investment bank compensation to contribute to an improvement in the bottom line and hence an improvement in the returns and dividends to shareholders," the UBS analysts said. However, amid talk that any new chief executive would split off the investment bank from the high street business, UBS does not favour such a policy but a less radical reduction in the size of the balance sheet that would still allow the bank to maintain an investment banking arm.