Salz Review - Wall Street Journal

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5 Salz Review An Independent Review of Barclays’ Business Practices same lens. The implicit and explicit government support of banks and the systemic risks they pose to financial stability make them semi-public institutions. As a result, politicians and the public believe they have the right to insist on changes. Banks need to set the highest standards to meet expectations. 2.6 The public disapproval of banks generally has been exacerbated by the series of high-profile occurrences that reflected poor behaviour by some bankers – including alleged mis-selling of products, such as PPI, to some customers; attempting to manipulate LIBOR, 3 a key interest rate; and failing to comply with government sanctions. The public has been understandably shocked by some of the revelations. It takes them as confirming the view that some banks and bankers have lost any sense of social responsibility and are only out for themselves. 2.7 In this context, Barclays’ behaviours have elicited significant criticism. Its business practices have been roundly questioned by regulators, politicians, the media and the wider public. Barclays’ reputational vulnerability was amplified by its large investment bank, which it has successfully built over the past 15 years, and by having a highprofile investment banker as Group Chief Executive. Investment banks, with their complex products, financial trading activities and high bonuses, have been particularly blamed for the financial crisis. 2.8 For the employees at Barclays this has been a difficult time. Our meetings with them and a survey we conducted made clear that the overwhelming majority are focused on the bank’s customers and doing their best for them. They are as disappointed as anyone by some of the behaviours. 2.9 In the face of this intense scrutiny and criticism, Barclays decided to set up this Review, tasking us to make recommendations as to how Barclays can rebuild trust and develop business practices which will help make it a leader among its banking peers and multinational corporates more generally. 4 2.10 Our Review focuses on Barclays and the challenges it faces in achieving its objectives. However, while banks are not all the same and very different business models are adopted by different institutions, we recognise that some of the challenges facing Barclays and addressed here are industry challenges. We also recognise that Barclays is subject to real competitive pressures and will wish to set the changes to which it is committed in the context of building long-term value for its shareholders. The Need for Change 2.11 In the years prior to the crisis in 2008, Barclays pursued a bold growth strategy which we describe in Section 4. About ten years ago, its ambition was to become a top-five global bank, with one third of Group profits coming from investment banking and two thirds from global retail and commercial banking (including Barclaycard). The 3 London InterBank Offered Rate, a benchmark interest rate at which banks can borrow funds from other banks in the London interbank market. 4 An analysis of the lessons Barclays can learn from other high-risk industries is set out in Appendix D.
Salz Review An Independent Review of Barclays’ Business Practices 6 strategy also envisaged the bank having more international scale. The investment bank planned to double in size in four years and it exceeded these plans. In addition, the retail and commercial bank expanded rapidly in Spain, India, Russia and elsewhere. By 2008 the bank’s growth had resulted in leverage (ratio of assets to equity) of 43, higher than the other UK banks. With the acquisition of parts of Lehman Brothers in September 2008, the investment bank grew to represent rather more than half of Barclays’ profits and three-quarters of its assets. 2.12 Barclays arguably achieved overall much of what it set out to do. It came through the last five years of financial crisis as an independent, profitable bank. It has become one of the UK’s largest global banks, with businesses in Spain, Africa, the US and many other countries. Most of its customers have remained loyal despite recent events and Barclays has continued to attract talented staff to work for it. 2.13 However, it is our view that this rapid journey, from a primarily domestic retail bank to a global universal bank twenty or so years later, gave rise to cultural and other growth challenges. The result of this growth was that Barclays became complex to manage, tending to develop silos with different values and cultures. Despite some attempts to establish Group-wide values, the culture that emerged tended to favour transactions over relationships, the short term over sustainability, and financial over other business purposes. To some extent these characteristics were reflected in the broader business environment. But the overriding purpose at Barclays in the lead up to the crisis and beyond was expressed in terms of increases in revenues and profits, return on equity and competitive position. The drift in standards was manifest in the events that set the context for this Review. Barclays was not alone – many of its problems were also experienced by other major banks. But Barclays can take no comfort from this. Indeed, we believe that generally banks took too much comfort from some business practices being standard in the industry. 2.14 It is understandable, and in many respects necessary, that since the start of the financial crisis, there has been an explosion in new regulation and in the intrusiveness of regulators. However, regulation alone cannot address the fundamental underlying causes that led to the business practices which are in the spotlight – the cultural shortcomings we found. Barclays and all its stakeholders need to recognise that restoring its reputation requires transformational change to create a bank that must feel very different from when we started our Review: an organisation that feels different – to staff, customers, regulators, shareholders and the public at large, with a positive resilient culture that will sustain it as a modern, open and globally influential financial institution. Barclays Culture 2.15 We believe that the business practices for which Barclays has rightly been criticised were shaped predominantly by its cultures, which rested on uncertain foundations. There was no sense of common purpose in a group that had grown and diversified significantly in less than two decades. And across the whole bank, there were no clearly articulated and understood shared values – so there could hardly be much consensus among employees as to what the values were and what should guide
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Salz Review - April 2013
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