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Barclays, HSBC Put Investment Bankers In Charge

That both banks made their investment banking chiefs CEO speaks volumes about the importance of the business to their bottom lines.

In the 1990s, Barclays almost needed a revolving door on its C-suite, so frequently was it replacing its CEO, whereas crosstown rival HSBC Holdings has customarily rotated its top management with the predictability of the changing of the guard at Buckingham Palace.

Well, the U.K.’s two leading banks have changed their stripes. Last month Barclays announced a seamless succession plan, while HSBC, caught off balance by the departure of chairman Stephen Green for a government post, didn’t seem to know who was running the shop for a few days.

That both banks made their investment banking chiefs CEO speaks volumes about the importance of the business to their bottom lines, even as a government-appointed Banking Commission looks into possibly separating investment and commercial banking as part of the U.K.’s response to the crisis.

The news that Barclays’ president and investment banking boss, Robert Diamond Jr., 59, would succeed John Varley, who is retiring at 55 after seven years as CEO, underscored the dramatic transformation in the bank’s fortunes over the past decade. While Varley revived Barclays’ U.K. retail and commercial banking franchise and expanded overseas, notably through the 2005 purchase of South Africa’s Absa Group, Diamond turned the bank’s Barclays Capital subsidiary from a second-tier fixed-income shop into a global bulge-bracket investment bank, capped by his bold acquisition of Lehman Brothers Holdings’ U.S. business after it went bankrupt two years ago. Barclays, which generated nearly 90 percent of its profits from the U.K. in the mid-’90s, today makes roughly two-thirds of its profits overseas. Barcap generated 48 percent of group revenues and 86 percent of pretax profits in the first half.

The promotion of Diamond — an investment banker, and an American to boot — rankles some in the U.K. The government’s Business secretary, Vincent Cable, said the move underscored concerns about the combination of so-called casino banking with a deposit-taking institution. With the Banking Commission considering that very issue, such views can’t be lightly dismissed.

Yet in elevating Diamond, who will take over in March, Barclays is making a confident statement about its new profile. “We believe passionately that Barclays and the universal banking model are a strong positive for the U.K.,” Diamond tells Institutional Investor. The bank remained profitable throughout the financial crisis and didn’t need a government bailout, unlike U.K. rivals Royal Bank of Scotland Group and Lloyds TSB Group, he notes.

Diamond intends to continue expanding Barclays’ global footprint. The bank is well-positioned to benefit from growth in Africa through Absa, as well as from the weakness of many banking rivals in Europe. “The environment will be opportunity-rich,” he says.

Not as rich for Diamond himself, though. The banker, who took home £34.7 million ($54.5 million) last year — much of it from the sale of ­Barclays Global Investors, in which he held shares — will receive a £1.35 million salary in his new role, with potential bonuses worth a further £3.4 million.

In contrast to the smooth handoff at Barclays, HSBC stumbled after Green announced that he was leaving to become U.K. Trade and Investment minister. An uncharacteristic struggle for the chairmanship broke out between nonexecutive director John Thornton and CFO ­Douglas Flint after it became clear the board would not allow CEO Michael Geoghegan to step into the job as his predecessors have done. HSBC initially denied that Geoghegan was threatening to quit, but soon afterward announced he would be retiring early, in January, and would be succeeded by investment banking chief Stuart Gulliver. “I came to a very quick decision that it was time to hand over to the next generation,” Geoghegan said.

Gulliver, like Flint a longtime HSBC executive, received a £9 million bonus last year. He, too, will take a pay cut in his new position, to £1.25 million plus a bonus of up to £5 million. A well-traveled extrovert who has spent much of his career in Asia, he will provide a complement to new chairman Flint’s U.K. experience and technocratic manner.

Gulliver’s investment banking unit delivered half of the bank’s $11.1 billion in pretax profits in the first half of this year, but the business is geared toward emerging markets and isn’t as extensive as Barclays’. The 51-year-old banker was promoted to oversee all of HSBC’s banking operations in Europe and the Middle East earlier this year, grooming him for a wider role. Like Geoghegan, he will be based in Hong Kong.

In promoting Flint, who will stay in London, HSBC emphasized his expertise in regulatory policy, something that will be important as the Banking ­Commission prepares to issue its report next year.

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