In the sparse office he now occupies in the Seagram Building in Midtown Manhattan, Robert Diamond Jr., the former CEO of Barclays, paced in circles and tried to explain how he had gone from being one of the highest-ranking and highest-paid bankers in Britain to a guy who takes the subway to this office in exile and waits in line for his coffee at a cart on Park Avenue. Not to suggest that times are too tough for Diamond — he's not complaining, and he still has more money than his grandchildren's grandchildren will ever need. But for the American investment banker who was arguably responsible more than anyone else for transforming the British finance industry, it has been a pretty spectacular fall.
“It's hard for me to talk about it,” Diamond said. “I've tried to move on.”
The conventional explanation is that Diamond, 61, was ousted last July after regulators in Washington and London uncovered a “pervasive” scheme by several banks, including Barclays, to manipulate a key interest-rate benchmark known as the Libor, or London interbank offered rate. The yearslong investigation found that Barclays traders regularly submitted false information in order to boost the company's trading profits and, in some cases, make the bank appear stronger than it really was. (“If you know how to keep a secret I'll bring you in on it,” one trader wrote to another in an instant message.) The scheme, which cost Barclays $450 million to settle, was described as the finance world's “scandal of all scandals” and eroded what little confidence was left in the workings of the industry.
Despite all the headlines, Diamond's role in the scandal was minimal, and perhaps wildly overblown. It may have been the nominal cause for his dismissal, but what really drove his departure was that he had become, as one member of Parliament described him, the “unacceptable face of banking.” Unlike other CEOs who have lost their jobs since the financial crisis, Diamond wasn't ousted by his company's board. He was pushed out by the British government — specifically by Mervyn King, the governor of the Bank of England.
On July 2, less than a week after the Libor scandal broke, King summoned Barclays' chairman, Marcus Agius, to his office. According to Agius, King told him, “Bob Diamond no longer enjoyed the support of his regulators.” The next morning, Diamond resigned. The day after that, George Osborne, Britain's finance minister, declared, “I hope that it is the first step toward a new culture of responsibility in British banking.”
Diamond looked stung when I mentioned Osborne's comment. “Do you want the truth?” he said. “Up until all of this, I didn't even know the mechanics of how Libor was set. If you asked me who at Barclays submitted the rate every day, I wouldn't be able to tell you. I bet you if you asked any chief executive of any bank on the street, they would give you the same answer.”
The “I can't know what every rogue trader is doing” defense has been used before, though I don't doubt that it's true. But the assumption around the world was that Diamond had created a culture at Barclays that encouraged the profit-at-all-costs mindset that led to the scandal.
“After the financial crisis, the British establishment became very divided over what's the model for the big banks that we want to see,” Martin Wolf of The Financial Times told me. “Bob represented investment banking big time. He represented the success of it — but also the sense that investment banking is dicey and not a completely sound business. He represented a way of doing business that we've become very uncomfortable with.”
It's an easy and satisfying caricature — that the reckless American banker poisoned the whole system — but it ignores an important reality: Under Diamond, Barclays was the only major bank in the U.K. that didn't need to be bailed out.
Diamond didn't go to an Ivy League school, didn't have the right friends and didn't grow up knowing anything about finance. He was raised outside of Boston, one of nine children, and went to Colby College expecting to become a teacher, like his parents. That plan was derailed when he took a job at a medical company, hoping to make enough money to go back to school to get a Ph.D. A year later, in 1979, his boss was hired to build the computer system for Morgan Stanley and asked Diamond to go with him. Soon after, he made his way to the trading floor, and it didn't take long for the outsider to became a fully formed creature of Wall Street. When he quit in 1992 to go to Credit Suisse, Diamond poached his team in a way that has become lore inside Morgan Stanley. Knowing that his former boss, John Mack, was going to be aboard a 12-hour flight from Tokyo to London, Diamond had his team resign en masse. Mack learned the news after he touched down at Heathrow, and at a staff meeting the next morning, he described Diamond as a “duplicitous scumbag.” Today Diamond bristles at that version of the story. “I didn't do anything while his airplane was in the air,” he says.
In 1996, Diamond took what at the time seemed like a step down, joining Barclays' investment division, which was considered “the rump” of the already staid bank. Yet over more than a decade, Diamond turned Barclays into the only British financial institution that could be credibly mentioned in the same breath as major Wall Street firms like Goldman Sachs and J.P. Morgan. Along the way, he bought Lehman Brothers out of bankruptcy and remade Barclays' asset-management business, which was making under $100 million a year in 2001 when he started running it and became a $1.5 billion annual business. Barclays later sold the division for a whopping $15.2 billion.
Diamond was paid well for his success, often to the chagrin of the public and even some of his higher-ups. For his work between 2007 and 2012, he walked away with about $30 million, after giving up his bonus in 2008 and 2009 and returning his bonus for 2011. He also earned as much as another $30 million for the sale of Barclays' asset-management business, in which he had a separate stake. The press feasted on the numbers — often inflating the total to $180 million — contributing to the resentment in a city where even the most successful CEOs were paid much more modestly.
When Diamond returned to the subject of his final days at Barclays, he got visibly anxious and unleashed a several-minute monologue. He learned the details of the Libor investigation while he was on a trip to visit clients on the West Coast in late June. As he paged through the evidence, he said, “I got physically sick, and I couldn't believe some of the phone conversations that were happening between traders.”
Diamond expected blowback, but didn't believe it would be directed at him. The company's lawyers advised the board to settle the case immediately, figuring that regulators would look more favorably upon the firm if it got out in front of the other banks. Diamond was convinced that he had the support of the bank's shareholders, board and regulators, but when he got back to London and the settlement was announced, all hell broke loose.
“Who was going to take responsibility?” Prime Minister David Cameron said. “How are they being held accountable?” Lord Oakeshott, the former Liberal Democrat Treasury spokesman, went further: “If Bob Diamond had a scintilla of shame, he would resign. If the Barclays board had an inch of backbone between them, they will sack him.” The Labour leader Ed Miliband declared that a criminal investigation into Barclays should begin in earnest, and Diamond was called to testify before a parliamentary committee.
Marcus Agius, who had privately planned to step down as chairman at the end of the year, decided to resign immediately in an attempt to defuse the criticism. The board told itself the politics would subside and reaffirmed its backing of Diamond. Diamond even wrote a memo to employees saying, “We have their full support, so it is now our responsibility to execute.”
But 24 hours after writing that memo, Diamond was standing in his kitchen with Agius and another director, who had come to his house straight from their meeting with Mervyn King. It was over, they said. Diamond had to go.
Libor and politics
To appreciate what really happened, it's necessary to understand both the mechanics of Libor and the politics of the moment in the U.K. Libor is a reference rate that is used in all sorts of loans around the globe. (A student loan, for example, might be based on Libor plus 2 percent.) It is defined by the British Bankers' Association as “the rate at which an individual Contributor Panel bank could borrow funds, were it to do so by asking for and then accepting interbank offers.” The rate is established every weekday, at 11 a.m., when 18 banks from around the globe submit their numbers for that day. The highest and lowest submissions are thrown out, then an average is calculated and published.
It isn't hard for a bank, or a series of banks, to have an impact on that daily average. As a top regulator told me, “Everyone always knew Libor was made up.” In April 2008, on a recorded call, a Barclays employee told a Federal Reserve employee, “We know that we're not posting, um, an honest Libor.”
After the collapse of Lehman Brothers and the shocks to the financial system, King seemed to indicate to Parliament, in November 2008, that he too was aware that Libor had become a farce. “It is not a rate at which anyone is actually borrowing,” he said.
Just a month earlier, Diamond had a curious conversation with one of King's top lieutenants, Paul Tucker. The call was so perplexing, Diamond told me, that he wrote a memo to his own file, perhaps worried it might come up again later. “Mr. Tucker reiterated that he had received calls from a number of senior figures within Whitehall (Treasury) to question why Barclays was always towards the top end of Libor pricing,” he wrote, suggesting Barclays was in fact looking weaker than many of the other banks, even though, in truth, Barclays was perhaps the strongest of the banks submitting a daily rate. “Mr. Tucker stated ... that, while he was certain we did not need advice, that it did not always need to be the case that we appeared as high as we have recently.”
In other words, the memo suggested that Tucker was pressing Barclays to reconsider how it was determining the rate at which other banks would lend to it — and because the market was essentially dead at the time, the number could be invented. Barclays was making the submissions of other banks, like Lloyds Banking Group and Royal Bank of Scotland, both of which required bailouts, look unrealistically low.
On the final morning of Diamond's tenure at Barclays, he said he picked up The Financial Times and saw, splashed across the front page, an article saying that he threatened to reveal damaging details regarding the regulators' dealings with Barclays.
Diamond told me that he never planned to implicate Tucker. Tucker would later dispute Diamond's memo, saying it gave the “wrong impression.” But inside the Bank of England, they were bracing for Diamond's testimony. Later that same day, King summoned Agius and the other Barclays director to his office, setting Diamond's resignation in motion.
One afternoon this winter, Diamond stood in a classroom at Yale, waxing on about the political view that banks are too big to fail and about the implications of regulation and the opportunities that he now sees in Europe and Africa. It's a talk he has been giving in a lot of places, and it serves not just as a way to keep him on the radar of the business community but also as an introduction to his next big venture.
Because of a noncompete agreement with Barclays, Diamond is prevented from starting a new business or going to another company until this summer. But he has been flying all over the world, talking with academic experts and investors, floating his idea of creating a merchant bank that advises and buys stakes in businesses in Africa and Europe. It's very unlikely that Diamond will ever create something that can compete with Barclays, but he says that he hopes to work with large companies again, even if his own is much smaller. It will be his way back into his former world.
For now, though, he's still alone in his office, without the power or the entourage or the trappings he once enjoyed. He seemed a little wistful for that former life. “If you looked annoyed,” he said, “someone was walking up and saying, 'How could I help?' It's a bit of an exaggeration, but you know what I mean.” As for where he is now, he said, “All of a sudden, if you scream fire, there's no one there.” And then he added, “I think it's been very positive and kind of liberating.”