Arrogant and obsessed with winning at all costs: Barclays' moral flaws laid bare in damning report

By Ruth Sunderland

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Anthony Salz: Barclays fostered a 'winning at all costs' culture which saw moral values disgarded

Anthony Salz: Barclays fostered a 'winning at all costs' culture which saw moral values disgarded

Barclays dished out staggering bonuses of nearly £3million every year to 60 investment bankers between 2002 and 2009 - an incredible £170million between them on top of their salaries - as many 'lost all sense of proportion and humility', a withering independent report concluded yesterday.

The lender fostered a 'winning at all costs' culture which saw its moral values put on the back burner as it went in pursuit of profits, with arrogant bankers believing they were immune from 'ordinary rules' of society, according to the report into the bank’s defective ethics by top lawyer Anthony Salz.

This tendency to push the rules to the limit was epitomised by its controversial tax avoidance unit – the Structured Capital Markets division – which masterminded a £7.6bn Cayman Islands smoke-and-mirrors scheme known as Protium to minimise tax bills.

In his weighty analysis of the moral failings at Barclays, Salz highlighted Protium as an example of its ‘corporate character’, which he portrayed as edgy, arrogant and obsessed with winning at all costs.

Protium was a prime example of its habit of lavishing ‘unusual’ financial incentives on favoured casino bank staff. And the board misjudged the potential damage Protium could do to its reputation by taking an approach that confirmed the regulators’ scepticism about its assets and accounting practices, Salz found.

Sign of the times: City regulators raised concerns with Barclays' board in February 2012 about a breakdown of trust with the bank over incidents including the Protium scheme

Sign of the times: City regulators raised concerns with Barclays' board in February 2012 about a breakdown of trust with the bank over incidents including the Protium scheme

City regulators raised concerns with Barclays’ board in February 2012 about a breakdown of trust with the bank over incidents including the Protium scheme, designed to transfer toxic assets off its balance sheet and make it appear healthier. 

Executives from the FSA told Salz they conveyed their view that Protium ‘was a complex transaction with which they were very uncomfortable’, but that Barclays (down 8.2p to 289.3p) went ahead anyway.

 

Salz found that the bank could have reduced the effect the toxic assets had on its balance sheet in a much simpler way, by switching them from one loan book to another, where they would not have to be marked down in value.

The clear implication of his report is that the bank chose the Protium route in order to deliver vast rewards to a group of 45 bankers it wanted to manage the toxic loans.

Protium was dreamt up by the bank’s notorious Structured Capital Markets division, whose raison d’etre was to minimise tax bills. It was run by supposedly ‘independent’ management team known as C12, which would receive a fee of £26m a year.

In reality, this was a group of 45 employees who had been overseeing the assets within Barclays. They were allowed to leave the bank and set up their own company, with a £7.7bn loan granted on cheap terms over a decade by Barclays.

Protium was owned by C12 and two anonymous hedge funds that between them put in an investment of £300m. They anticipated a mouthwatering equivalent to 18 per cent a year, with any residual value also going to them after the loan to Barclays was repaid.

It meant that C12 and the other investors stood to gain handsomely if they could wind down the toxic asset exposure at a profit – but that the bank remained at risk if things went wrong. Barclays’ disclosures did not put a figure on those ‘residual values’ in any of its disclosures, Salz said.

In April 2011 Barclays took back £6bn of the assets onto its own balance sheet after the FSA imposed onerous conditions on the deal. The bank had to pay an £55m ‘break-fee’ to C12, and also agreed to buy out the anonymous third party investors for £180m as well as investing £500m in another C12 fund, Helix.

At the end of last year the bank was nursing net losses on Protium of £205m.

 

The comments below have not been moderated.

Maybe if people ACTUALLY knew what investment banks do; like the issuing of $$££trillions of bonds year after each year to fund countries/companies global growth and jobs, the issuance of equity for start up companies, the day to day market making in bonds, equities, forex etc etc with tight bid/offer spreads that provide all the liquidity that fund managers, like pension funds, require to do their job - and the £60 to £100 bil that came into the UK coffers to fund nice things that neither came from bank losses, or retail banking, just look at the breakdown of banks with capital market divisions PROFITS for the past 30-years, especially the last 3 years.

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The banks have had the High Street banks as a luxury which has enable them to spend its money on casino banking. They should be split and then lets see how long 'investment banking' last, having squandered the gamblers 'chips'. The state should NEVER bail out the banks again.

Click to rate     Rating   3

This is really why the banks must be completely split with people who want to invest in a solid safe High Street Bank knowing their money is not going to be used on risky ventures, and the investment banks standing completely on there own not being able to access money from the High Street banks, and so the people who want to take the risk of putting their money into the investment banks with the chance of higher profits that must be more than the bank dealers get but also they must realize that if the investment bank goes to the wall they will lose their money and that the taxpayer will not have bail these casino bankers again.

Click to rate     Rating   6

...maybe it's time to switch to Bitcoin?

Click to rate     Rating   2

I hope they all burn in hell!

Click to rate     Rating   3

Oh please - Barclays "didn't get a public bailout" Barclays' apologists state (we could all argue that ie QE, interest rates of .5%) but what about the helping hand from the middle east!

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Barclays used to have two types of managers. Those recruited from the old banking families who had served the bank for generations and those from the middle class with Grammar school educations. The system worked well until "the Investment side" took over Wedd Durlacher & de Zoete at the time of Big Bang. The head of this dept addressed the partners of these two firms saying that they were looking for "players" by which he meant grasping immoral spivs. The reply from one Wedd partner summed it up"You don't want gentlemen then!?" The new Barclays board is no different from the old one i.e. nasty & grasping.

Click to rate     Rating   17

Interesting to note all the Barclays bank bashing that has been going on for months now; to the exclussion of almost every other bank. Are attempts being made to rubbish Barclays specifically I wonder? As far as I know, Barclays were the only bank in this country that were able to avoid a public bail-out during the start of the recession simply by arranging re-financing elsewhere and, I think, without government intervention. Not many people seem to like that, apparently.

Click to rate     Rating   3

Barclays seem to be taking over the world. First it was egg credit card now ing direct. I will be moving my money from the isa into my current account which bizarrely will pay more interest from Saturday. Thankfully I don't have any outstanding balance on the credit card so I am cancelling that too.

Click to rate     Rating   6

They should send all the other Banks, Building Societies, Insurance companies, in fact British Business as a whole, they all need to review their ethics.

Click to rate     Rating   9

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