Barclays’ Self-Analysis: More Than a Political Exercise?

Libor fallout unlikely to be stemmed by the bank’s “independent business practices review” led by Rothschild vice-chairman.


Barclays Bank is emphasizing change and reform in the wake of the Libor scandal. The abrupt departure of the head of its remuneration committee, Alison Carnwath, on July 25 came soon after the bank announced an “independent business practices review,” led by Rothschild vice-chairman and former corporate lawyer Anthony Salz, that presages a clean-up of the bank’s culture.

Carnwath is the fourth board member to resign from the London-based bank following the $450 million of fines levied by U.K. and U.S. regulators last month after employees were found trying to manipulate the benchmark for short-term interest rates. Chairman Marcus Agius, CEO Bob Diamond and COO Jerry del Missier all resigned earlier in the month, although Agius is staying on to lead the hunt for Diamond’s successor.

Carnwath said in a statement that she could “no longer devote sufficient time to my role as a director of Barclays given my other commitments.” Among other non-executive roles, the 59-year-old is chairman of U.K. real estate company Land Securities and a director of Zurich Insurance Group, as well as a member of the remuneration committee of the London-based hedge fund Man Group. But Carnwath had fallen out of favor with many shareholders, some 22.5 percent voted against her appointment in April, who held her partly responsible for failing to rein in Diamond’s GBP 17.7 million ($27.4 million) pay package for 2011. Yet she had publicly acknowledged the need to control payouts in the future, saying at the Annual General Meeting in April, “We will continue to seek to push down remuneration levels in the context of the environment in which we operate.”

The outside review led by Anthony Salz signals Barclays’s willingness to change its very culture, something which Diamond vigorously defended in front of the U.K. Treasury Select Committee on July 4, but which the Libor scandal has damningly exposed. The bank said in a statement on July 24, “The global review will assess the bank’s current values, principles and standards of operation and determine to what extent those need to change.” He will be interviewing “stakeholders” including investors, regulators and staff over the course of several months, although the bank has not publicly set a timetable. Salz is certainly “independent,” as the bank says, but he’s closely acquainted with the business having been an adviser during his 30 years as a lawyer with Freshfields Bruckhaus Deringer in London up to 2006.

Some observers aren’t sure the review matters much. Ian Gordon, banks analyst at Investec Securities in London, said Barclays must carry it out “largely for political correctness, although that’s not to say it won’t have consequences.” Still, Gordon believes Barclays shares remain a good buy, offering excellent value at a little over 150 pence per share, down from above 220 pence immediately before the scandal blew up, and points out that most of the other U.K. banks face scrutiny of their Libor practices. He says Barclays is his “top pick” and has a target price of 240 pence this year, in the belief that it is “the only major U.K. domestic bank capable of expanding its lending should credit-worthy demand improve.”

Barclays and the rest of the industry, however, still face a Parliamentary inquiry into banking standards this year, as well as a more specific Libor inquiry led by the U.K. regulator, the Financial Services Authority. What’s more, the FSA and the U.S. authorities, including the Department of Justice, is investigating more allegations of wrong-doing, involving links between Barclays traders and their contacts at other banks. There is likely to be yet more revelations and fall-out in the coming months for Barclays and for the banking industry in general.