Top US banker quits Barclays as turmoil rages over bosses' pay
James Moore is the Independent's Associate Business Editor and writes the Outlook City comment column from Tuesday to Friday. He also has a keen interest in disability issues and when not attempting to further injure himself playing wheelchair basketball.
associate business Editor
Wednesday 30 April 2014
Barclays was facing fresh turmoil last night as its top US investment banker quit as head of Americas after barely 18 months in the role.
The shock news of Hugh "Skip" McGee's departure was followed soon after by revelations that Barclays will next week be hiving a host of its banking operations into a so-called "bad bank".
The new non-core unit is reportedly set to include such declining operations as its trading of interest rate products, currencies and commodities, as well as loss-making branches in continental Europe.
The departure of Mr McGee, 54, comes amid continuing controversy over pay and bonuses at Barclays' American investment-banking division, built from the ashes of Lehman Brothers' US operations. They were bought out of bankruptcy by former chief executive Bob Diamond.
Mr McGee had been the most senior ex-Lehman banker at Barclays, and his departure sparked speculation that a rash of others could follow him out the door.
Officially, the bank said he was leaving because of the focus on regulation and compliance his job would entail as a result of US banking reforms. These require overseas banks operating in the US to establish an "intermediate holding company" containing all their subsidiaries by 1 July 2016.
Barclays said the role would as a result "require a great deal of management focus over the next two years on regulatory relations, compliance, and the very significant legal and operational ramifications associated with the creation of the new entity". This would not appear to play well with the skill set of Mr McGee, one of the bank's top deal makers who received nearly £9m in shares from bonus schemes this year, more than any other executive.
But the issue of pay has led to tensions at the business and former Lehman staff still working for Barclays have made no secret of their unhappiness with the scrutiny and focus on their earnings, despite the hefty pay rises many of them enjoyed through the bank's increased bonus pool.
Barclays' chief executive, Antony Jenkins, added fuel to the fire by warning that the bank would have faced a "death spiral" of bankers quitting for more money at rivals had it not hiked pay last year.
Mr McGee was seen as having played a key role in maintaining remuneration levels for his former Lehman colleagues.
The bad bank plan will be unveiled next week in a strategic update to investors. The moves are likely to involve heavy cuts and job losses and be implementated by the co-chief executives of its corporate and investment bank, Tom King and Eric Bommensath. Mr Bommensath will reportedly run the bad bank. There had been speculation the pair could be facing the axe given the unit's stuttering performance, but that proved wide of the mark. The bank said Mr McGee's replacement, Joe Gold, would report in to them. Mr Gold joined Barclays in 2002 from the collapsed energy trader Enron.
Doomsday scenario: Bank's strict test
The Bank of England laid out an "extreme" economic crisis scenario yesterday that banks must be in a position to withstand to pass the regulator's new stress test.
The Bank's Prudential Regulation Authority painted a hypothetical picture of GDP plummeting 3.5 per cent over the next year, house prices dropping 35 per cent and inflation soaring 6.5 per cent by the end of 2016.
Other elements of the dire picture include unemployment spiking to 12 per cent. The Bank's recession scenario also includes interest rates jumping from 0.5 per cent to 4 per cent.
Lenders that fail the stress tests will be directed to increase their capital levels.
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