Barclays flawed

Chartered Accountants Northampton Harris & Co report, dramatic changes to the way Barclays conducts its business are urgently required if the bank is to recover its reputation after its controversy-racked tax avoidance division was revealed to have generated billions in profits, says a hard-hitting independent review of its culture.

The Salz Review revealed that Barclay’s structured capital markets made over £9.5bn in 11 years.

Commissioned by Barclays, the wide-ranging review by corporate lawyer turned banker Anthony Salz, found that a negative shift in its culture led to the recent series of damaging events at the bank such as the Libor-scandal that caused the resignation of several of its top brass such as chief executive, Bob Diamond.

The former Conservative chancellor Lord Lawson, who sits on the parliamentary commission on banking standards, dubbed Barclays’ structured capital markets arm guilty of ‘industrial scale tax avoidance’.

But Antony Jenkins, the bank’s new chief executive, has vowed to shut the division down.

The 244-page Salz review, which took eight months to produce and interviewed 600 bank employees - found Barclays’ bankers had lost a ‘sense of proportion and humility’.

The report said:

‘The investment bank’s success was based on recruiting clever, competitive people. Its ‘edginess’ attracted them, as did the promise of high pay, the opportunity to be part of building something and the deeply entrenched commitment to winning.’

‘Short-term success fed into the pay, bonuses and LTIPs of the senior executives and those who made the money, especially in the investment bank. At a time of growth for almost everyone, the cracks were not noticed by Barclays, by the other banks or, to a significant extent, by the regulators. Without being aware of it, Barclays allowed a drift in its cultures.’

‘When the financial crisis broke, all this changed. The disproportionate sharing of risk between employees and shareholders became apparent.’

However, while Salz states that ‘the task is clearly far from straightforward’ the ‘Barclays of today is committed to change and has set out a five-year programme.’

‘Its current leaders have started the process of embedding awareness of what a large, evolving, global bank needs – and does not need – if it is to sustain itself over the long term.’

‘It was a lack of self-awareness that contributed to the deeply disappointing chapter in Barclays long and proud story. If short-term financial returns and employee rewards are ever too dominant in the bank’s culture, problems will result.’

Salz concludes that the report’s recommendations ‘provide a framework for Barclays to address the failings we have identified and a roadmap to help it restore trust and its reputation’.

Commenting on the report, Sir David Walker, chairman of Barclays, said:

‘The report makes for uncomfortable reading in parts. That is bound to be the case when one asks for an independent examination of this kind, and we must learn from the findings.’