Barclays board weighs break-up

The storm over Libor fixing has prompted directors to examine a New York spin-off of the investment banking arm

Simon Duke, Dominic O’Connell and Oliver Shah Published: 8 July 2012

DIRECTORS at Barclays are to consider splitting the bank in two after taking a public battering from the interest rate rigging scandal.

Insiders said the board will examine whether to spin off the investment banking arm from the retail and commercial operations.

The investment bank, until recently called Barclays Capital, would be floated in New York, with the rest of the group retaining its London listing.

A break-up would represent the most desperate effort yet to tackle the crisis at Barclays, Britain’s second-largest bank by assets, and would be a triumph for the critics of “casino” banking, including Sir Mervyn King, governor of the Bank of England.

King was behind the ousting of Bob Diamond, the bank’s chief executive and the champion of Barclays Capital. He quit on Tuesday and was followed by Jerry del Missier, the chief operating officer. Marcus Agius, the chairman, will go when a new chief executive has been found.

The bank’s top brass are also set to urge Diamond not to accept his full payoff, worth up to £17m. They fear a huge “golden parachute” payout could ignite public anger.

Senior Barclays figures are believed to have already met the Association of British Insurers, a key investor body, to discuss plans to cut Diamond’s exit package.

Barclays has been under siege since revealing 11 days ago that it had attempted to rig Libor, a key benchmark that underpins consumer loans, mortgages and trillions of pounds worth of derivatives trading. The scandal will be revived tomorrow when Paul Tucker, one of King’s deputies, appears before the Commons Treasury committee.

More than £3.7 billion has been wiped off Barclays’ market value since the revelations over the rigging of Libor. The shares closed at 164¾p on Friday, compared with 195p before it accepted fines of £290m from British and American regulators over the scandal. The bank is now valued at just over £20 billion. Barclays said yesterday that a split was not under consideration, but two senior insiders and one former board member told The Sunday Times the plan would be studied.

“We have to consider whether there is greater value for shareholders from a break-up,” said a source. “We are faced with a hostile regulator and capital requirements in Britain that are restrictive.”

Directors also fear an opportunistic bid, with bankers tipping Goldman Sachs and JP Morgan as potential predators.

A split would make the British operations significantly less valuable. Barclays Capital accounted for more than half the group’s £5.9 billion profit last year.

Meanwhile, Sir Mike Rake, the deputy chairman, has emerged as clear favourite to replace Agius, with Anthony Jenkins, head of the retail bank, tipped by some to be Diamond’s replacement.

It is understood that Rake would take the £750,000-a-year post only if he was assured of support from politicians and regulators. If that were forthcoming, he would step down from the chairmanships of Easyjet and BT to devote himself to Barclays.

The Libor debacle is expected to lead to big losses at Britain’s state-owned banks. Royal Bank of Scotland, which is 82%-owned by the taxpayer, could end up paying damages of more than £2 billion after being sued in America for allegedly manipulating the inter-bank lending rate. Lloyds Banking Group, 41%-controlled by the state, could be hit with a bill of several hundred million pounds, analysts said.

Lloyds, RBS and Barclays are among nearly 20 banks being sued. In a New York writ, Charles Schwab, America’s largest retail stockbroker, accuses 18 global banks of “racketeering”. It claims they “reaped hundreds of millions, if not billions, of dollars” by manipulating rates.

Sandy Chen, an analyst at Cenkos, the stockbroker, said: “It’s easy to get to figures that would run into the billions.”

UBS and RBS are expected to be next to reach a settlement, although this is “months rather than weeks away”, sources said.