Barclays resignations prompt Moody's outlook downgrade

The resignations of three senior Barclays executives have triggered a downgrade of the bank’s credit rating outlook from stable to negative.

by Michael Northcott
Last Updated: 19 Aug 2013

Former Barclays chief executive, Bob Diamond, may have got off lightly from his to-do with the Treasury Select Committee yesterday, but the bank didn’t. Thanks to the Libor rate-fixing scandal, the bank has now seen three senior management figures resign, enough for credit ratings agency Moody’s to get a bee in its bonnet: Barclays has had its rating outlook downgraded from stable to negative this morning. The three resignations were all three legs of the tripod: from CEO Bob Diamond, chairman Marcus Agius, and COO Jerry del Missier. Collateral damage, as a banker might say… 

Moody’s puts its decision down to the instability caused by such an exodus of management figures, as well as mounting pressure from politicians and shareholders. In a statement it described ‘consequent uncertainty surrounding the firm’s direction,’ and said that the scandal ‘could lead to broader pressure on the bank to shift its business model away from investment banking’ to reform its business culture. That’s a worrying prediction, since Bob Diamond’s proud boast is having actually created the investment banking arm of the bank, Barclays Capital. It's worth noting that the downgrade is only for the bank's 'outlook', meaning it is on watch. It's actual credit status has not been downgraded.

The scandal responsible for the resignations is only just beginning to kick off: Libor interbank lending rates have allegedly been fixed by traders all over the City, so expect more heads to roll once the parliamentary inquiry into banking (announced by the PM last week) gets a bit of momentum. 

Meanwhile, one has to admire Bob Diamond’s altruism(!) He couldn’t say enough times in his parliamentary hearing yesterday how much he ‘loves’ Barclays, hinting that stepping down was only the honourable thing he could do to protect the bank he loves so much. We reckon his gallantry still won’t have won him any friends in the Occupy London movement… 

Still, this is only the start of the scandal, with many executives from other banks no doubt preparing for parliamentary hearings over rate fixing as we speak. Now that the initial scandal has broken, we have to wonder if anger will subside and others will get off more lightly. Even for Diamond, a £20m severance package and an outlook downgrading for your former employer hardly addresses that ‘risk vs. reward’ conundrum, does it now?

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