Member Article

Book Extract - An unchanging culture: Banking after the crash

Bad Banks by Alex Brummer:

If the global economic landscape was transformed by the fallout from the banking crisis of 2007–8, the nature of the banks themselves showed remarkable resilience. Some banks might have crashed. Some might have had to make heavy cuts to expenditure and staffing levels.

Some might have had to accept greater outside involvement, particularly from governments. Individual bank bosses might have been fired or replaced. But more striking than these changes was the remarkable continuity of the pre-crash banking culture.

This can readily be seen in the sorts of people called upon to turn around crisis-hit institutions. That they were all very experienced bankers is hardly surprising. But they were also bankers of a consistent and very particular type: investment bankers. In Britain, for example, when Gordon Brown’s Labour government needed someone to deal with the disaster that was the Royal Bank of Scotland, they turned to investment banker Stephen Hester. Given his background it’s not surprising that Hester believed that he could trade RBS out of trouble using its investment-banking arm. When he joined journalists for festive drinks in late 2009, high up in RBS’s headquarters at Bishopsgate in the City of London, he enthusiastically described how in the post-crisis marketplace – thinned out by the collapse of Lehman Brothers and the problems of other free-standing investment banks – it was RBS’s markets division that was doing surprisingly well.

At Barclays, similarly, it was decided that the man who should replace chief executive John Varley after he stepped down in September 2010 should be Bob Diamond, the head of Barclays’ investment-banking arm BarCap. His chairman Marcus Agius, who first resigned in the summer of 2012 to try and keep Bob Diamond in his post, was also an investment banker, having previously headed dealmakers Lazard in London. When Diamond was eventually persuaded to leave at the behest of the authorities in July 2012, Agius agreed to stay on as chairman to steady the Barclays ship. At the Lloyds Banking Group in September 2008 it was initially believed that Andy Hornby, who had played such a significant role in the disasters at HBOS, should be kept on as deputy chief executive. Lloyds’ American chief executive Eric Daniels did actually succeed in hanging on to the top job until February 2011. The new chairman of the bank, brought in to replace the architect of the ill-fated merger, was Sir Win Bischoff. Bischoff has spent his entire career in investment banking at Schroders and latterly Citigroup.

It has to be said that the relationship between investment banking and retail banking has not been an entirely happy one, and the relationship between investment banking and banking disasters has been a worryingly close one in recent years. Yet the belief that investment bankers were the people to sort out the problems they had helped to create ran deep.

Bad Banks by Alex Brummer is available in paperback for £8.99

Published by Random House Business Books

This was posted in Bdaily's Members' News section by Alex Brummer, author of Bad Banks .