Barclays' reputation has been damaged by scandals. To regain glory, the document proposes Barclays address core issues like changing culture, improving transparency, and capping risky trading. It notes most banks in scandals fail or continue struggling, but non-financial companies recovered by fixing underlying problems. The document offers solutions for Barclays like reforming hiring, leadership training, and embracing new regulations.

1. Summary
What should Barclays do to regain its glory?
Pramod Jindal
MBA Candidate 2013
pramod.jindal13@rotman.utoronto.ca
001 647 773 4032

2. Barclays is a major global financial service provider
• Barclays is a major global financial services provider engaged in retail
banking, credit cards, corporate and investment banking and wealth
management with an extensive international presence.
• Listed on NYSE (BCS- ADR) and LON (BARC)
• Consistently in news for LIBOR and PPI scandals
Total Revenue $48 B
Net Income $4.6 B
Market Cap $52 B
Core Tier 1 Ratio 11%
Return on Equity 5.8%
No of Employees 141,000
No of Countries 58
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3. Barclays PLC’s eight business segments
contributed net revenues of $48 billion in 2011
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4. Payment Protection Insurance (PPI) Scandal
• PPI policies have been sold alongside loans to repay people's borrowings if
their income fell because of illness or unemployment
• PPI profit margins 85% (higher than home or car insurance) and Banks
aggressively mis-sold these expensive, inefficient and ineffective policies
• May 2011, court ruled that customers could claim compensation on PPI
policies dating back many years. This was expected to allow 3 million people to
make claims totalling £4.5 B, but now expected to be about £10 B
• In Oct 2012, Barclays sets aside £700 M apart from £1.3B provisioned already
• By Oct 2012, Barclays had received 19,522 claims(highest in UK) followed by
Lloyd’s 9,493
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5. London Interbank Offered Rate (LIBOR) Scandal
• LIBOR is the rate at which banks lend to each other in London
• Used to price financial instruments worth over $350 T
• A crucial indicator of the creditworthiness and liquidity of the banks
• Managed and calculated by British Banker’s Association(BBA), a self-regulated
trade union
Submissions Average of
arrive at an the
undisclosed remaining
location of rates = LIBOR
Banks Thompson British
submit the Reuters Banker’s
inter-bank Association
borrowing representative
rates removes the
highs and lows
(outliers)
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6. LIBOR Scandal: A Chronology
Concerns raised The WSJ published that Reported BARC agreed to UBS agreed to
whether submissions for LIBOR launch of $453M $1.5 B
submissions for were significantly below investigations settlement with settlement with
LIBOR truly reflected than those for Credit- by SEC, US CFTC, US DOJ CFTC, US DOJ,
bank borrowing default insurance Dept. of and UK FSA UK FSA and
costs Justice, CFTC SWISS FMSA
Nov 2007 May 2008 March 2011 June 2012 Dec 2012
“I am sorry. I am disappointed and I am angry. There was absolutely no need for the behavior that was
exhibited”
Bob Diamond, Former Barclays CEO to UK Parliament
“Barclays has gone from heroes to zeroes”
Tim Peat, Managing Director, Barclays
“Barclays falsely reported the rates and the reported rates had a pervasive pattern”
Gary Gelsner, Chairman, Commodities Futures Trading Commission
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7. Fallouts of LIBOR Scandal on Banking Industry
• Multiple law-suits and investigations in over 7 countries for 20+ banks
• LIBOR oversight handed to UK FSA
• Questions raised over
• Integrity, ethics of banking and capital markets
• Self regulation
• Role of regulators and Bank of England
• Aggressive culture of risk taking
• Credibility of financial system
• Bloomberg CEO Dan Doctoroff pitched to the European Parliament to develop
BIOR (Bloomberg Interbank Offered Rate) that would use data from transactions
such as market-based quotes for CDS transactions and corporate bonds
• YouGov Poll: 70% of the pollsters thought banks were driven by greed, while half
of those questioned agreed that British banks had lower ethical standards than
other major UK businesses such as manufacturers, pharmaceutical or retailers
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8. Fallouts of LIBOR Scandal on Barclays
• CEO Bob Diamond and Chairman Marcus Agius forced to resign
• Fine of $453M (about 10% of annual profits)
• $4.5B of market cap erased after Barclays admitted to wrongdoings
• YouGov Poll
• Barclays brand suffered more harm than oil company BP did for the 2010
Gulf of Mexico oil spill
• 12% of Barclays customers polled were considering moving their main
current account to another bank
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9. Reasons cited for scandals
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10. Or the reasons not cited?
Risk taking Inheritance of a Structured to Too big to Huge
mentality failed promote risk manage reliance on
taking capital
(Lehman) culture
markets
Capital market= Reliance on Insane Porous
senior bailouts performance Chinese
management targets Walls
Ineffective Risk
Management
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11. How can Barclays rebuild itself?
• Disappointing empirical evidence for banks
– Most financial institutions caught in scandals have disappeared
(Barings Bank, Lehman Brothers, Drexel Burnham etc.)
• However, most major British banks have been engaged some sort of
scandals (NatWest/Royal Bank of Scotland: serious computer glitches,
HSBC: money laundering , JP Morgan: London Whale, Lloyds: employee
fraud)
• There exist non-financial firms that were able to earn back the lost glory
by fixing the core problem and not resorting to cosmetic changes
– Maple Leaf Foods (Listeria breakout)
– Dow Chemical (Bhopal gas tragedy)
– Shell Oil (Brent spar)
– BP (Gulf of Mexico spill)
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12. Integrative solution to business problem
Changing Promoting risk- Include Improve Capping prop trading
hiring averse and liabilities clause transparency,
strategies conservative visibility, Effective Chinese
culture accountability walls
and oversight in
business lines
Retail bankers to Payback BOE FLS Align employees’ Embrace BASEL III &
occupy senior funds goals with the Dodd Frank
positions bank’s
Leadership training Capping Capital
for senior managers Market business
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13. Summary
• Context: Barclays’s reputation has been tarnished by PPI and LIBOR scandals
• Problem Statement: What should Barclays do to regain its glory?
• Proposed solution: Barclays needs to address core business issues and not
resort to cosmetic changes
• Major Insights
– Most financial institutions caught in scandals either didn’t survive or continue to suffer
– Barclays is not the only British Bank facing the issue
– Multiple examples of non-financial companies winning back the reputation by addressing
core problems
– Barclays can stage a timely comeback through execution of the integrative solution
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