More Bankers Must Resign!

LONDON -- Last week was a terrible one for British bank Barclays (LSE: BARC.L  ) and its shareholders.

Marcus Agius, sacrificial lamb
After admitting to rigging the LIBOR -- the London Interbank Offered Rate, which is the key interest rate among London Banks -- between 2005 and 2009, Barclays coughed up $450 million in fines to U.K. and U.S. regulators. However, this rate-rigging scandal will not end there, as 20 other banks remain under investigation by 10 different regulators around the world.

However, in order to restore confidence in Barclays and its staff, chairman Marcus Agius resigned yesterday evening. In a serious mea culpa issued to the stock market this morning, Agius confirmed his departure from the board of Barclays, admitting:

Last week's events -- evidencing as they do unacceptable standards of behaviour within the bank -- have dealt a devastating blow to Barclays' reputation. As Chairman, I am the ultimate guardian of the bank's reputation. Accordingly, the buck stops with me and I must acknowledge responsibility by standing aside.

Agius, a widely admired leader who is 65 and has been Barclays' chairman since January 2007, also stated:

I am truly sorry that our customers, clients, employees and shareholders have been let down. Barclays is full of hard-working, talented individuals whose integrity is not in question. It goes without saying that Barclays will continue to have my wholehearted support in the future.

In addition, the former chairman confirmed that Barclays is to conduct an independent "root and branch" audit of its business practices. Also, to restore its tarnished reputation, the bank will "establish a zero-tolerance policy for any actions that harm the reputation of the bank."

One could argue that this smacks of closing the stable door after the horse has bolted.

Saving Private Diamond
This resignation goes some way to mending Barclays' public image, but it is not enough -- not by a long chalk. Indeed, Agius is playing the role of scapegoat, diverting attention away from Barclays' 60-year-old, American-born chief executive, Bob Diamond.

"Diamond Bob" was paid 27 million pounds in a single year when Barclays was riding high, versus 750,000 pounds a year for its ex-chairman. Hence, having taken a huge share of the pie when times were good, Diamond should take the lion's share of the responsibility for Barclays' current crisis by resigning, too.

Amazingly, Diamond disagrees and believes that, rather than being cut, he can stay and polish his reputation. (OK, no more gemstone puns.) This is a big mistake, as 88% of readers replying to today's Daily Telegraph poll said Diamond should go immediately.

Having worked in PR and financial journalism for 15 years, I will give the limpet-like Diamond some free advice: "With such a toxic personal image, it is absurd for you to argue convincingly that you should remain Barclays' leader. To help your 140,000 staff in 50 countries, quit now while you can, before you are forced out by sickened shareholders!"

The buck doesn't stop here
In the parting words of Marcus Agius, the past five years "have been a period of unprecedented stress and turmoil for the banking industry in particular and for the wider world economy in general." Even so, this does not excuse the series of scandals that Barclays -- and other banks -- have engaged in, both before and after the bursting of the credit bubble in 2007.

The past five years have exposed misdeeds such as the manipulation of Libor, widespread mis-selling of payment protection insurance to borrowers, mis-selling of interest rate derivatives to small businesses, and imprudent lending to high-risk borrowers.

In short, it's not that great a stretch to argue that British banks -- including the "Big Four" of Barclays, HSBC Holdings (LSE: HSBA.L  ) , Lloyds Banking Group (LSE: LLOY.L  ) , and Royal Bank of Scotland (LSE: RBS.L  ) -- have gone from "gross greed" to "rewards for failure" to "institutionalized dishonesty."

What's more, possible criminal charges could follow the LIBOR investigation. These could include felony charges for complicity to conspire to fix prices under America's Rico law (the Racketeer Influenced and Corrupt Organizations Act). Potentially, this could indict scores of LIBOR conspirators around the world.

Whose heads should roll?
Events since 2007 have clearly shown leading bank executives to be guilty of ignorance, incompetence, negligence, or outright collusion when it comes to controlling highly paid traders. This strongly suggests that more heads must roll before banks can even start to rebuild their shattered reputations and public standings.

To see who could be next in the firing line, I've compiled short biographies of bank bosses, covering chairmen, CEOs, CFOs, and investment-banking heads. Here they are:

1. Barclays

Role

Current Occupant

On Board/in Role Since

Comments

Chairman

Marcus Agius

January 2007

Resigned July 1

CEO

Bob Diamond

Summer 1996

Should resign or be sacked

CFO

Chris Lucas

April 2007

Should resign

IB head

Rich Ricci, Jerry del Missier

1994; June 1997

Both should resign

The departure of Marcus Agius should only be the beginning, as at least four more leaders need to depart Barclays in a mass clearout. Otherwise, Barclays shares will remain undervalued when compared to their global peers, thanks to their "Diamond discount."

2. HSBC

Role

Current Occupant

On Board/in Role Since

Comments

Chairman

Douglas Flint

1995

 

CEO

Stuart Gulliver

May 2008

 

CFO

Iain Mackay

2010

 

IB head

Samir Assaf

January 2011

All scandal-free so far

Of all the U.K.'s Big Four banks, HSBC rode out the financial crisis best. Even during the depths of the global financial crisis of 2007 to 2009, HSBC needed no government bailouts. Currently, its board has clean hands, though it has been named as a defendant in LIBOR lawsuits.

3. Lloyds

Role

Current Occupant

On Board/in Role Since

Comments

Chairman

Sir Winfried Bischoff

September 2009

Banking legend

CEO

Antonio Horta-Osorio

January 2011

Clean hands, but was absent due to stress

CFO

George Culmer

May 2012

New face

Lloyds concentrates on retail and commercial banking, thus avoiding endless investment-banking scandals. What's more, its board has already been cleared of "bubble bosses," so it need not worry about these latest developments. Then again, the bank's image has been permanently dented by its 17.4 billion pound bailout by taxpayers, who currently own 41% of the bank's shares.

4. RBS

Role

Current Occupant

On Board/in Role since

Comments

Chairman

Sir Philip Hampton

January 2009

Banking VIP parachuted in to rescue RBS

CEO

Stephen Hester

October 2008

Ex-Abbey banker appointed to turn around RBS

CFO

Bruce van Saun

October 2009

Another post-crisis appointment

IB head

John Hourican

October 2008

Should go

RBS nearly died during the crisis of 2007 to 2009, but it received a taxpayer bailout of 45.2 billion pounds. It then cleared its board, forcing out its CEO Fred "The Shred" Goodwin (who had no banking qualifications). Today, the public owns 83% of RBS.

I will single out one "boom-time bonus" banker at RBS for the chop: John Hourican, chief executive of markets and international banking. Hourican was at the heart of investment banking at RBS from 2001 onward, and frankly, it's a miracle that he has survived thus far. His name should be first on the departure list when RBS eventually gets fined for manipulating LIBOR.

As an ex-banker, I've been bearish on banks for five years. In fact, I don't own any bank shares today and have bought none since 2007. Likewise, Britain's biggest investor, Neil Woodford -- who manages 20 billion pounds of our money for Invesco Perpetual -- also shuns bank shares.

To find out which great British businesses Woodford is buying, read Eight Shares Held By Britain's Super Investor. For more about these eight money-making machines -- and Woodford's magnificent mind and methods -- download your free copy of this report today.

More from Cliff D'Arcy:

Cliff does not own any of the shares mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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