Session 2010-11
Publications on the internet

To be published as HC 612-vi

House of commons



Treasury Committee

Competition and Choice in THE BANKING SECTOR

Tuesday 11 January 2011

Bob Diamond and Antony Jenkins

Evidence heard in Public Questions 518 - 627



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Oral Evidence

Taken before the Treasury Committee

on Tuesday 11 January 2011

Members present:

Mr Andrew Tyrie (Chair)

Michael Fallon

Mark Garnier

Stewart Hosie

Andrea Leadsom

Mr Andrew Love

John Mann

Mr George Mudie

Jesse Norman

Mr David Ruffley

John Thurso

Mr Chuka Umunna


Examination of Witnesses

Witnesses: Bob Diamond, Chief Executive, Barclays, and Antony Jenkins, Chief Executive, Global Retail, Barclays, gave evidence

Q518 Chair: There seem to be quite a lot of people here this morning. There are a few chairs right in the front row, but I somehow think that there won’t be many takers for those from the audience today.

Thank you very much for coming, Mr Diamond, and happy new year. Congratulations on your appointment. We have quite a lot of ground to cover-on remuneration of course, on the question of systemic risk and bank regulation, and also on retail banking competition. Could I just begin by asking you whether Barclays is too big to fail?

Bob Diamond: No, we don’t think so. First of all, Chairman, happy new year to you and to the Committee as well, and thank you for your comments about my new role. I am very, very excited. I am incredibly honoured. Barclays took its first deposits in the City of London in 1690. That’s a daunting 320 years of history, and I’m both honoured and very, very motivated in the new role, so thank you.

No, I don’t think Barclays is too big to fail. That’s the simple answer; let me give a little bit more colour around it. I think the business model that we employ of the integrated universal banking model is an important starting position. It gives us great diversification of earnings, great diversification of our clients, but also great diversification of our deposits, both institutional and retail, and of our funding sources; we just raised money in dollars in the US late last week. So that diversification is a very important part of being financially stable.

The second thing I would say is that-and I’ve said this consistently-no bank should ever be a burden on the taxpayer, so we have to make the system safer and sounder. I think that’s about risk management. With banks that failed, if there was something that was consistent it was poor risk management, and I think we’ve done things around risk management and around regulation so that there is less risk of outsized losses at banks.

Secondly, I think it’s about the capacity to absorb losses, and that goes behind a lot of what the regulators have been focused on, in terms of Basel III and Dodd-Frank. Even when there is a bank such as Barclays, which is so strong and so well diversified, "What if?" is the question that the regulators would have-"What if the worst happened and that bank got into trouble?" Then we need resolution and recovery plans. I can tell you that we at Barclays are working very closely with the FSA on just that. I know people talk about the need for regulators to be able to unwind an institution in short order, and we agree with that ambition.

There are really two choices for regulators, and that is not to have large complex banking organisations, and our view is that the reason why we need those is for jobs and economic growth. The reason why we need banks such as Barclays is that our clients are bigger. Our clients are more international: more of the business they do is in China, India and Africa. So what we do need is a plan to be able to resolve banks that get into trouble, and those are the plans that we’re working out with the FSA.

Q519 Chair: If Barclays did get into trouble, how would you as the c hief e xecutive lose out?

Bob Diamond: I think it is clear that, if any banking institution got into trouble, where you look first is at the chief executive and at the risk management of the institution, and I think that has been the case when we’ve seen banks fail-whether it’s here in the UK or around the world during this period.

Chair: Okay , but how would you lose out?

Bob Diamond: I would assume I would lose out by both losing my job and losing any shares that I had in the company.

Q520 Chair: This is under the claw-back agreement that you have signed and that is disclosed in the company accounts?

Bob Diamond: Yes, I think that is how the compensation programmes work. Correct.

Q521 Chair: The public’s liability, though, is unlimited, but your liability is limited to the claw-back. Isn’t that right?

Bob Diamond: I would like to back this up just a little bit, if we can. I think the important thing in discussing the business models of banks, talking about competition and talking about choice, is that Barclays has very strong risk management and Barclays has an appropriate business model-the integrated universal banking model. So any discussion here that Barclays could get into trouble is surprising.

Q522 Chair: It may be surprising, but we have just had several banks go down and as a result the taxpayer has footed a huge bill, so I think it’s not surprising that we’re discussing it, is it?

Bob Diamond: Chairman, in direct answer to your question: is there a process for regulators in place going forward to resolve financial institutions that get into trouble? I think that is a function of supervision and how banks manage themselves; it’s a function of the new capital rules, the new regulations and the changes that have been made in terms of the financial architecture, and I think it’s about resolution and recovery.

I was in Basel over the weekend, where there was a meeting on just this subject with the G20 regulators and Finance Ministers. Central Bank Governor Draghi, as you know, was chairing the FSB and chairing just this initiative, and I think this is important for the regulators in the industry to resolve.

Q523 Chair: You do accept, though, that the risks to the senior executives are limited, whereas the risks to the taxpayer are unlimited?

Bob Diamond: Yes, and we also agree that it’s not okay for taxpayers to have to bail out banks. Banks should be allowed to fail. If banks have bad management, then they should be allowed to fail. We completely agree.

Q524 Chair: Would you examine risky deals in exactly the same way if your shirt was on the line?

Bob Diamond: I’m sorry?

Chair: Would you examine risky deals in exactly the same way if you had unlimited liability-if your shirt was on the line?

Bob Diamond: Sure. I think what you’re coming back to is: at Barclays or at a financial institution, how do we manage risk, both in terms of the governance of risk appetite and the scale and scope of the risk that we’ll take in various businesses?

I think what we look back on is that in the most difficult times of the financial crisis, when the UK stressed banks, Barclays stayed above minimum capital requirements. When Europe later stressed all the banks, Barclays was the only large bank whose capital increased under the stress. So I think we’re consistent in agreeing that risk management is the single most important thing that we can do, along with strong regulation, to ensure that taxpayers never have to put money into banks again, and then-sorry-

Q525 Chair: You have said you would take exactly the same approach to risk if your shirt was on the line. Don’t you think it would give the public reassurance if the top CEOs, and others at the top of banking, did have their shirts on the line-in the way they used to, with unlimited liability?

Bob Diamond: I agree with you. I think there is significant risk for chief executives and senior executives, in the way the compensation programmes work, in the way the shares in the company work and in terms of losing their jobs-

Chair: Yes, but I am suggesting an increase in that risk. Are you agreeing with me that that risk should become unlimited?

Bob Diamond: I think we have many people-

Chair: I’m not saying that it should; I am positing the thought and asking you whether you think that is something that we should consider.

Bob Diamond: I think that is something that our owners should decide.

Q526 Chair: Have the shareholders been in touch with you about the remuneration and bonus package this year?

Bob Diamond: We haven’t made decisions on bonuses for this year. The board will be meeting over the next couple of weeks on pools and allocation of pools. But having said that, our owners-our shareholders-are continuously involved from the point of view of how we govern it and how we run our businesses. They, ultimately, approve the remuneration report.

Q527 Chair: But are they engaging with you in a discussion about your bonus structure this year?

Bob Diamond: In terms of the structure, we have had continuous discussions with the shareholders and I would like to back up a second to explain that more. So, what are the kinds of things that we discuss with the shareholders around compensation? Compensation is pay for performance, not pay for failure; compensation is in line with G20, with FSB and with FSA guidelines. We were early to adopt those; many of those we had in place already. We discussed with our shareholders the governance process in place at Barclays, which is that we have an independent remuneration committee of the board that approves those.

Q528 Chair: May I just ask a more specific question: do the shareholders have available to them at present the information of the type that Sir David Walker thinks should be more widely disclosed? Have they asked for that information?

Bob Diamond: We haven’t determined the pools or the allocation of pools yet.

Chair: Yes, but if they are going to be engaged in the discussion, as you suggested earlier, then presumably they need the information before you take the board decision.

Bob Diamond: I think they get the information just the way I described. Chairman, are you asking about the Walker review?

Chair: Yes. I’m asking you whether that level of disclosure has at least been made to the shareholders.

Bob Diamond: No, that’s not part of-

Q529 Chair: So the shareholders don’t know what you’re considering paying in bonuses, and they don’t know the structure of the bonus scheme that you are going to announce?

Bob Diamond: As I said, the shareholders know the philosophy, which is pay for performance, and that we don’t pay for failure. They know exactly how we’re going about compensation, which is in line with the UK regulations of the FSA, in line with the G20 regulations and in line with FSB. They know how the governance works and the most important thing that our owners know, Chairman, is that a strong Barclays in a strong business is what they’re monitoring most closely.

Q530 Chair: How can shareholders exercise judgment and restraint on remuneration if they don’t even know the numbers?

Bob Diamond: I think, from what I’ve said, you know that the shareholders are very involved in terms of our philosophy, about how we determine the pools and about how we run the businesses.

Q531 Chair: But we have established that they are not going to know the numbers until you have determined what they are at board level. Is that correct?

Bob Diamond: The board has not determined the pools-

Chair: The shareholders won’t be informed until the board determination?

Bob Diamond: No, they won’t be given the disclosure that you’re referring to.

Q532 Mark Garnier: Mr Diamond, you have come out in the past saying you are very much against having a functional separation of the retail and investment banking side of your bank. Would you not agree, though, that having a functional separation would result in greater financial stability in your organisation?

Bob Diamond: It’s a very good question because it’s the one that we get asked the most in terms of separation of retail and investment banking. Let me give an overview, and then I’d ask Antony to make a comment, particularly on the retail banking side of how that works.

It is interesting-and I started on this earlier-that the integrated universal banking model gives us far more financial stability because we have deposits, both institutional and customer, from a broader group of investors from a broader geographic reach. We have revenue pools that come from around the world; we have funding sources-both equity and debt-that come from around the world, so the financial stability of Barclays is stronger as a result of the integrated universal banking model.

We see that in our funding spreads, our ability to raise money in the market, and that allows us to have greater capacity for lending and to lend at better terms. So we think, both from a financial stability point of view and from a customer service point of view, that it’s a positive for Barclays to have the integrated universal banking model.

Antony Jenkins: One of the things that we saw through the course of the crisis was that customers brought their money to Barclays because they had confidence in Barclays to be there through the travails of the crisis. So customers do have confidence in Barclays as an institution.

Q533 Mark Garnier: That is very reassuring, but the problem is that there are a number of other banks, as have already been referred to, that failed with investment banking operations. Now, if I’m talking to my constituents and they are expecting to go along and deposit money with Barclays, they are going to want to make absolutely certain that you aren’t going to have some rogue trader sitting in Canary Wharf who is going to suddenly do something completely ridiculous and blow the bank up, which we have seen happen on a number of occasions-Société Générale recently, Barings before.

How can you reassure my constituents-indeed everybody, including the taxpayer-that that cannot happen? You obviously run a very tight ship when you’re running BarCap, but other chief executives don’t necessarily do that.

Bob Diamond: Let me take a crack again at a couple of things that I think will help you see why we don’t feel that way, and Antony will pick up again as well.

If you look at the failures in the United Kingdom, whether it was the Bank of Scotland or a combination of the Bank of Scotland and Halifax, whether it happened before the integration with Lloyds or after, there was no rogue trader, there was no derivative and there was no proprietary trading. It was vanilla lending. It was a lack of risk management. It was an overexposure in some cases to commercial real estate. It was traditional vanilla banking business that created the issues of failure in the United Kingdom. I think it’s unfortunate that people use terms like "rogue trader" and "casino banking" when the truth is that at Barclays we exited proprietary trading in 1998. I couldn’t be prouder of the business that we’ve built at Barclays Capital. The clients are the very centre of everything we do.

I would love to have an opportunity for members of this Committee to come in and spend a day in our operation, starting in the morning with flows of deposits from central banks in Asia, seeing the business that we do with pension funds in the UK and helping them earn returns above the almost zero interest rates we have with risk-free returns. It’s a customer-driven business.

When I talk about financial stability, I think the best example I can give you is the following. In 2008, during this period of incredible crisis-and listen, I’m the first to say that this is a difficult environment to manage through-Barclays made about £6 billion. In that year, about £4 billion of the £6 billion of earnings came from retail banking and £2 billion came from other activities, including investment banking. We haven’t produced results for 2010, but if you go by the analyst expectations, their expectations are about £6 billion in earnings in 2010, about £4.5 billion of that coming from Barclays Capital or investment banking in a very tough year for retail banking because of provisions around housing, commercial real estate and other areas. That balance is tremendous. This is fair to say, but if that balance had been there in the Irish banks, would the situation have been different? So there is the diversification of earnings.

But the other thing is that it’s not appropriate to talk about casino banking and Barclays Capital; it’s not appropriate to talk about rogue trading and Barclays Capital. We do take risk. We take risk on behalf of our clients. We have clients that need to raise capital and manage risks. I had a conversation just yesterday with one of our newest clients, a farmer in Wales. He has just moved his account from one of the other UK banks to us, and one of the reasons was the level that we can lend at, and I can come back to that in a second. One of the other reasons is that we’re able to help this farmer hedge the EU subsidies out through 2012. With so much uncertainty in the world, the need to remove as much financial risk from the price of fertiliser, the EU subsidy, the currency exposure on the EU subsidy, so he could focus on his sheep-farming and not have to focus on all the other risks, was something that’s very important.

Q534 Mark Garnier: Your chairman Marcus Agius has referred to the possibility of Barclays relocating abroad. If the Independent Banking Commission comes up and says that you have to split, would that be a deal breaker for you? Would you feel you would have to move abroad?

Bob Diamond: Let me be crystal clear: we took our first deposits in the City of London in 1690; we have 320 years of history in London as the premier financial centre in the world. We have absolutely no intention of changing that. We’re going to work constructively with the Independent Banking Commission to show that giving customers the choice of an integrated universal banking model as well as others, and the financial stability-we respect the decisions that they will arrive at. We have a lot of respect for the process the Independent Banking Commission is going through. They have very serious people who are taking their job very seriously, and it has implications for the United Kingdom and the economy in the United Kingdom for many years to come.

But our starting position is very clear: we are going to be here in the United Kingdom, and this is the place that we want to succeed. It’s really important, this question, because-

Q535 Mark Garnier: Can I just ask you, in support of your answer-

Bob Diamond: Okay. Remind me to come back to that.

Mark Garnier: Could you list why you think England is such a good place to be? I mean, it’s like a bit of positive news coming out. You can go through: is it the regulatory regime? Is it the tax system? Is it the fact that we speak English? Is it the fact that we’re the centre of the world in terms of time zone? What is it that makes the City of London so terrific, and why would you stay? And if you did ever have to move, or felt you wanted to move, where would you go that would provide as good an opportunity?

Bob Diamond: Let me go through the advantages, as you have asked, and then try and give some balance to the discussion, because there are some issues out there and I think it would be disingenuous to say that there are no issues. Then I’ll ask Antony to come in as well.

You mentioned the English language. It is certainly an advantage. The time zone is certainly an advantage, but over time there has been no city in the world that has benefited more or been more supportive of foreign trade and flows of business in and out of the city than London. So London has become a place that is recognised as very good for business and very good for talent. People have enjoyed living here, but it has been much more about companies feeling that this is good for business, it’s good for raising capital and it’s good for attracting talent.

There are some issues. I think the Prime Minister, the Chancellor and the Business Secretary have been very focused on some of those issues in terms of cutting Government spending, reducing the deficit, focusing on debt, and recognising that we have to pass the mantle for growth because we are going to have a reduction in some employment areas, particularly as public spending comes down, but we have to hand the mantle of growth to the private sector and to banks. I think they recognise that there was a period of remorse and apology for banks. I think that period needs to be over; we need our banks willing to take risks, confident, and working with the private sector in the UK so that we can create jobs and we can improve the economic growth. That’s very important for the United Kingdom.

There are some challenges now in terms of some of the actions that have been taken, super equivalency and regulation. That is not shaking our position at all. I think we’re still working through a lot of these, but it would also be good if we had a bit more clarity and confidence. The confidence in Barclays is there, but it’s not that there aren’t challenges.

Antony Jenkins: I think it’s important to note that we have 66,000 colleagues in the UK; we have 10 million credit card customers; we have 12 million retail bank customers; and we have 1 million SME customers. This is a very big important business for Barclays and will continue to be so.

Q536 Michael Fallon: Mr Diamond, what would be the impact on Barclays if the Independent Banking Commission recommended keeping universal banks but insisted on greater geographical subsidiarisation along the HSBC model?

Bob Diamond: It’s difficult, because we respect the Independent Banking Commission. We have had an opportunity to submit written evidence. John Varley, Chris Lucas and I have had a chance to testify. I don’t want to pre-judge that, but our view is public record, so I’ll repeat our view as opposed to what I think they will rule, if that’s okay. Our view is that the integrated universal banking model is the right model, and one of the things it does is that it improves our ability to fund and that-

Michael Fallon: Sorry, I understand that. Time is short. What would be the impact, though, if you lost that argument and they recommended subsidiarisation?

Bob Diamond: There is a form of subsidiarisation. The difficulty is the nuance. Subsidiarisation is a very broad term. If there was an extreme version of subsidiarisation, in essence it would be the same as separating retail and commercial banking.

Q537 Michael Fallon: You don’t think the taxpayer interest would be better protected by more subsidiarisation than we have at present?

Bob Diamond: I don’t. I feel strongly that the model that we employ is best for financial stability. I can throw out a few questions for you that you have certainly had to wrestle with in the United Kingdom, but the best example would be Barings. The Barings operation in Singapore was a subsidiary. It was the extreme of subsidiarisation, but it didn’t prevent the taking down of Barings.

I think last year we saw an example where HSBC had real issues over a couple of years in their portfolio in the US with the acquisition of Household, and certainly we didn’t see HSBC walk away from that. So I think we have to focus much more on what the implications are in terms of funding. There would be a significant increase in the funding levels for a firm modelled such as Barclays, and that has implications in terms of the capacity for lending as well as the price of lending.

Q538 Mr Ruffley: Mr Diamond, the Bank of England have pointed out that because you’re too big to fail, and because the taxpayer stands behind you, you’re much more creditworthy and therefore can borrow money much more cheaply than if you were standing alone. The Bank has calculated that that is worth £100 billion a year to the "Big Five" banks. Are you grateful to the British taxpayer for subsidising you in this way?

Bob Diamond: There are a couple of answers to this question.

Mr Ruffley: No, are you grateful to the British taxpayer?

Bob Diamond: We are very grateful to the-

Mr Ruffley: To the British taxpayer?

Bob Diamond: May I answer? We are very grateful to the central banks around the world and to the Governments around the world for the actions that they took.

Mr Ruffley: No, I’m talking about the British Government, who stand in the shoes of the British public. They say-and this is accepted-that you’re too big to fail, and the taxpayer stands behind you. That makes you more creditworthy and means you can borrow much more cheaply than if you were a stand-alone organisation. Now what I am asking you, Mr Diamond, is: are you grateful to the British public?

Bob Diamond: Can I ask you one question?

Mr Ruffley: Can you answer that question? I ask the questions, you give the answers. Are you grateful to the British public?

Bob Diamond: Part of what you said-

Mr Ruffley: Are you grateful to the British public?

Chair: Let Mr Diamond answer.

Bob Diamond: We are very grateful to the central banks; we’re very grateful to everyone; we’re very grateful to everyone that has helped the financial system get back-

Mr Ruffley: The British taxpayer?

Bob Diamond: We’re thankful for everyone. But if I can just point out-

Mr Ruffley: Does that include the British taxpayer?

Bob Diamond: What you just said, sir, is that because of the implied Government support-

Mr Ruffley: You are accepting that. Good.

Bob Diamond: But last week, we raised money at about 50 to 100 basis points lower in yield than the Government guaranteed banks in the UK.

Q539 Mr Ruffley: You accept that you are receiving a subsidy. Does that mean you feel you have a social responsibility to Britain to lend more, so that economic growth can take place?

Bob Diamond: Listen: absolutely. We think being a responsible banker is important, so if I gave any impression otherwise, I apologise. We need to be responsible. We need to do a better job of explaining to people in the United Kingdom-

Q540 Mr Ruffley: Okay, let’s cut the generalities. If we are going to get something from you for all the taxpayer subsidy we give you, many people-including in my constituency of Bury St Edmunds; small businesses-want banks like you to lend more. What did you lend last year to business in Britain? In general terms, how much did you lend last year?

Bob Diamond: Sir, I completely understand the need for bankers to be responsible-

Mr Ruffley: No, sorry, how much did you lend last year?

Bob Diamond: In 2009 we increased lending in the UK by £35 billion. What we talked about earlier in the year was setting a target of £11 billion. We exceeded it substantially. In 2010, we have increased lending in the UK by £35 billion for the first nine months of the year, so it would be larger on a full-year basis. We’re very committed to lending.

I need to point something out, and I think it’s really important: lending is what we do. The United Kingdom is our single most important market. We like to lend. It’s our business. It’s what we do with our customers and clients. I think, Antony, you can give many examples-

Q541 Mr Ruffley: I don’t want to speak to Antony; I want to speak to Bob on this occasion. In the FT this morning, it is suggested that in return for the Government going easy on bonuses, on not throwing the book at you, you will be asked to pledge to lend more next year. The figure suggested-floating around-is all the "Big Five" banks lending up to 10% more next year than last year.

What figure do you have in your mind? Share it with the Committee, because we’re asking the questions on behalf of small businesses and the British taxpayer here. How much more are you going to lend next year? You must have a notional figure in your head.

Bob Diamond: Well-

Mr Ruffley: Do you?

Bob Diamond: We have had discussions with the Government. I have not read the FT article, so I’m not aware of it.

Mr Ruffley: It’s this morning’s. It’s a good read.

Bob Diamond: We increased our lending by £35 billion in 2009; we did new lending of £35 billion in 2010. Can I have a chance to-

Mr Ruffley: Going forward, yes.

Bob Diamond: It is important. It’s not a simple question. There has been a-

Mr Ruffley: Yes, it is a simple question. What are you going to lend next year?

Chair: Let Mr Diamond answer the question you posed.

Mr Ruffley: He’s not doing terribly well at the moment. Go ahead.

Bob Diamond: So, we are committed to increasing lending. The "Big Four" or "Big Five" UK banks are in discussions. No decisions have been made, but we are committing to increase our lending in the UK. Those are the discussions that-

Q542 Mr Ruffley: Yes, okay, "discussions"-can you put a figure on it? The figure floating around is 10% more for the "Big Five". What increase will there be in lending next year to help the British economy grow? This is what we’re talking about.

Bob Diamond: Yes, absolutely.

Mr Ruffley: Small and medium-sized enterprises are the backbone of UK PLC. Now, what I want to know is: what sort of increase in lending? Don’t just say, "More lending next year". You’re a highly paid businessman, okay? Share with this Committee in general terms what increased percentage in lending next year you’re going to contribute to the British economy.

Bob Diamond: We have not yet made a decision.

Mr Ruffley: You haven’t?

Bob Diamond: No.

Q543 Mr Ruffley: Why not? We’re into 2011 already, as you’ve probably noticed. This coming year, what are you looking at?

Bob Diamond: Can you give me a second to give you an answer? I’d really appreciate it.

Mr Ruffley: Well, just give me an answer. That would be nice.

Bob Diamond: Just a couple of minutes, and then I’m happy to take follow-ons. We’ve seen a withdrawal-to your point, because it’s a very good question.

Mr Ruffley: It is.

Bob Diamond: We have seen a withdrawal of foreign banks and non-banks from lending in the UK, and over the last couple of years the UK banks have picked up the capacity that was removed from the UK. We have been very clear that we are committed to lending to our businesses here. Our best business is doing lending with our corporate clients in the UK: small businesses and large businesses.

We have seen demand reduce. We have seen our approval rates stay steady or increase at 80% to 85% of small business loans being approved, which is equal to or slightly better than it was before the crisis. We will continue to focus in this area. We think it is good business and we want to be a part of the economy growing. But what I would point out is that the best thing that Barclays can do for the UK economy and for UK jobs is to have a strong bank and strong risk management.

Barclays has performed very well during three years of financial crisis, having made profits in every single reporting period and having increased our lending to customers. I think Antony and I would say that in almost every line of business we’re doing more business with more clients, and it’s that strength-as the Chancellor said in his FT editorial last week, weak banks are a drag on the economy across Europe and weak banks are a drag on the economy in the UK. Strong banks working together with the private sector is what our responsibility is to create jobs and create economic growth.

Mr Ruffley: Okay, but you’ve overlooked-

Bob Diamond: We have an obligation to our owners; we have an obligation to our clients and our customers to do what they want; we have an obligation to 150,000 employees around the world, over 60,000 of them here in the UK; and we do have an obligation, as you said-I agree with you-to give back in the communities where our banks are, both by lending and by being better citizens. We agree with that and we are doing that.

Q544 Mr Ruffley: Yes, it isn’t just to shareholders. You have a moral and social obligation to the British taxpayer that gives you this implied subsidy that I described earlier. Let me just conclude by saying, will you-

Chair: One very last quick question.

Mr Ruffley: It is the last question.

Chair: And a quick reply, if possible, please.

Mr Ruffley: Some chance. Will you make yourself accountable by promising-now, today-to resign if you do not significantly increase lending in the coming year, so that Britain can grow and British economies can borrow on sensible terms?

Bob Diamond: Well, we can’t do-

Mr Ruffley: It’s a "yes" or "no", because the Chairman wants a quick answer to this.

Bob Diamond: Well, the-

Mr Ruffley: No?

Chair: Just let Mr Diamond reply.

Bob Diamond: I am going to give a full answer; I apologise. You’re going to get a full answer, and I think there are some things that we can all learn together. This is an opportunity to learn. This is about choice in competition and banking, and I respect the inquiry. No bank should ever make a specific commitment to how much they’re going to lend without looking at the creditworthiness of the borrower. That is how the UK banks, the Bank of Scotland and a number of other banks got into trouble. We’re not making the United Kingdom a better place with weak standards around credit.

Having said that, we are a bank. We are a British-based bank; we like to lend to our customers. I talked to a number of our business customers yesterday who are very active in increasing their employment and increasing their business because they have access to lending, so I think there is much more agreement, David, between us. We do feel a responsibility to jobs and economic growth in the UK.

Q545 Andrea Leadsom: Mr Diamond, I worked for Barclays and BZW for 10 years, including in the investment bank’s team when Barings went bust. I would just like to correct you on that specific point on subsidiarisation because, in fact, Barings Treasury, the group, was lending limitless sums of money-and that is what made them go bust-to a Singapore subsidiary that was not capitalised at all. So it wasn’t really subsidiarisation; it was "cock-up". Forgive me for correcting you.

What I would like to talk to you about is accountability, and it is this: having been in banking for a very long time, I completely understand and have authorised and paid very significant bonuses to traders on very specific briefs that they have met. That, to me, seems at the core of our capitalist society-wealth creation and so on.

But really, it is the accountability that is the question I have, and that is: when you are the board member-whether you are the chief executive or the head of risk, or whatever-who authorises the level of leverage that enables those traders to make those profits using extreme levels of leverage that, in effect, broke our financial system, who should be accountable? How do you think we can hold those senior individuals accountable in the future?

Bob Diamond: There is a host of ways, and I think it is the right question. I think leverage throughout the banking industry and throughout society was probably at levels that were too high before the crisis, and hopefully it is one of the lessons we have learned. In Barclays, our leverage has gone from about 34 or 35 to 1 down to 20 or 21 to 1, so we have changed the way we’ve done business.

In terms of producers, risk managers or traders, depending on how we refer to it, we have always judged them based on their risk-adjusted returns. So I think the quality of their returns, whether there is a completely-[Interruption.]-or there is residual tail risk, how much leverage they’ve used, how much capital they’ve used: all those things have to come into account. And then, to your point, I think adhering to the G20, the FSA and the FSB principles, in terms of compensation, claw-back and deferral: those are all ways that we try and get at the question that you asked.

Q546 Andrea Leadsom: Okay, but looking specifically at the issue of accountability, there has been no real accountability for the financial crisis, has there? Forgive me, you have said yourself that Barclays didn’t take taxpayer money, but of course all banks did. It was the Central Bank’s action in the interbank market that saved the banking system from total collapse-including Barclays, even with its strong capital ratios and so on. There is no question about that; you also benefited from taxpayer bailout. But there has been no accountability. Many chief executives didn’t take a bonus for a year, but now they’re presuming business as usual and they’re moving on. Very few people even lost their jobs. There were certainly no bans. Even Sir Fred Goodwin didn’t lose his significant pension, now being funded by the taxpayer. So where is the individual accountability going to be?

Bob Diamond: If I start with myself, I take my accountability-and we have to be a strong bank that is supporting economic growth and job creation while, at the same time, recognising that mistakes were made and that we need a safer and sounder financial system, and we worked on both sides of that. So there are changes in banks. Barclays today carries 10% core equity; it was closer to 5% before the crisis.

Andrea Leadsom: Yes, I understand that the bank has changed but I’m talking about the accountability. As the Chairman was saying at the start, there are no shirts on the line, nobody has gone to prison, nobody has been banned from ever working in a financial services company again; incidentally, in the Barings collapse, people were banned from ever holding a financial services post again. That simply hasn’t happened, and what I would like to know is: what are we to say to our constituents who write to us in rage and absolute frustration that they will almost certainly lose their £20,000 to £30,000 per year jobs, and yet the chief executives who effectively, as far as they’re concerned, got us into this mess, are carrying on business as usual and about to take home very generous bonuses.

Bob Diamond: I think that we do understand the mood of some people, and I think there are two answers to that from a Barclays point of view. I think there is a difference between an institution taking direct investment from Government and taxpayers and the things that were done by central banks and Governments. Chancellor Darling did a tremendous job during the crisis. Let’s be honest, that benefited all of us. That benefited Governments; that benefited banks; that benefited companies. It was really the financial system, and it was about being the lender of last resort.

We are very appreciative of the moves that have been made by everyone that was involved in making sure that we have a global economy and an economy in the UK and an economy in the US. On the other hand, it is true-I’m just going to say this-that there are 150,000 people at Barclays that are very proud that they never failed a stress test and that while we all made mistakes-I certainly made mistakes-we never put the bank at risk or the system at risk.

Andrea Leadsom: Okay, can I-

Bob Diamond: Let me finish, please.

Andrea Leadsom: Yes.

Bob Diamond: I think that the fact that we never took a single penny of taxpayer money from any country anywhere in the world, the fact that we were-

Andrea Leadsom: But that’s not true, is it? That’s not true on that point, sorry, that-

Bob Diamond: I allowed you to ask a complete question; I would appreciate it if you would allow me to give a complete answer.

So it was about how we managed our risk and how we performed in stress tests in the most difficult time. It was about being profitable in every single reporting period. Most importantly, it was about being close to our customers and clients. During the worst of the crisis in 2008, there were days when we had a four or five times increase in the amount of foreign exchange transactions from central banks in the UK and Europe and Asia who had to hedge out risks. So we are very proud of how we performed. That doesn’t mean that we’re also not extremely grateful for the support that was given by regulators, by central banks and by Governments, in terms of monetary and fiscal stimulus.

Our obligation, though, and that’s what I want to get to, is to run a great bank. Our obligation is that Barclays has to be a part, now that we’ve had some answers-not complete-on making the financial system safer and sounder, and we have been a very big part of working with the regulators in the US, the UK and Europe on that. Now our obligation is very clear: it’s time to pass the mantle to the private sector. That’s where growth, the economy and job creation is going to come from. It’s not going to come from the private sector, and it should come from the private sector.

So I want my feet held to the fire: can I operate Barclays in a new environment that’s safer and sounder, with higher capital ratios and lower leverage, and still serve my clients, whether they’re operating in China, India or Africa? And we still serve them in all the things that they need to manage their risks, invest their pensions and raise capital. That is the best help we can give the United Kingdom because there is an issue that is being addressed here in terms of high spending, high taxes and high levels of deficits, and we all want to make that situation better over time, so the best thing we can do is to run a fantastic Barclays.

Q546 Andrea Leadsom: Okay. One last very quick question. Could you just comment on the structured organisation Protium and the fact that it, I gather, holds toxic assets of the bank? Could you just comment on whether that is an appropriate-in your opinion, clearly it is-thing to be doing with poor assets of the bank, and what the impact will be in terms of separating non-performing assets from the bank’s general balance sheet?

Bob Diamond: Protium is a transaction that you refer to. We had some illiquid assets that we sold, so Protium is not a part of Barclays. So we did have some sticky illiquid assets that we sold, and it’s something that the regulators and the FSA were aware of. I think all banks came through this period recognising that, quite frankly, we had some assets on the balance sheet that were less liquid than we had hoped and were more difficult to move.

Q547 Andrea Leadsom: Is your personal remuneration in any way tied to the performance of that subsidiary?

Bob Diamond: No, it’s not owned by Barclays.

Q548 Mr Umunna: Good morning, Mr Diamond. Just picking up on the reference to the benefit of stimulus for the sector. You said in your CBI speech in October that you were grateful for the stimulus and that you recognised the benefits and accepted that obligations went with that. Would you say that one of the ways companies meet their obligations to society is through the payment of tax? Yes or no?

Bob Diamond: I think payment of tax is an important responsibility of businesses, yes.

Q549 Mr Umunna: Could you tell me how many subsidiary companies your group uses and are incorporated in the Isle of Man?

Bob Diamond: I don’t have that number with me. I would be happy to look into it and get back to you.

Q550 Mr Umunna: According to the return that your group company put in last year, you have 30 subsidiaries operating in that jurisdiction. Can you tell me how many subsidiary companies you have operating in Jersey?

Bob Diamond: I don’t have that number with me either.

Q551 Mr Umunna: The number is 38. Can you tell me how many subsidiary companies of your group are incorporated and operating in the Cayman Islands?

Bob Diamond: The same answer.

Q552 Mr Umunna: You have 181. Now, of course, all of these are well known tax havens which are used by companies, and a cursory reading of your group return shows that you have over 300 such companies operating in tax haven jurisdictions around the world. Could you confirm that while you headed up BarCap, the bank’s structured capital markets division sat within BarCap? You, if you like, had oversight of it.

Bob Diamond: Yes, I did.

Q553 Mr Umunna: So t hat division runs tax arbitrage for your bank for high net worth individuals, for companies, which enable you all to avoid the payment of UK tax.

Bob Diamond: That’s not correct.

Q554 Mr Umunna: That’s not correct. Why?

Bob Diamond: Structured capital markets are part of our overall financing operation. It is our obligation, when we do financing for clients, to do it in the most tax-efficient way. So it’s an institutional business and it works within our financing. I’ll give you a very good example. When the United Kingdom decided to develop the Canary Wharf area, they created-I forget the exact phrase-a tax-free zone, so in order to encourage people to move to Canary Wharf and to build buildings, they did it with tax benefits.

One of the things that we have done is that we have been at the forefront of leading financing of many of those buildings using the expertise in the area that you talk about with our financing capability, and so we’re doing things that are completely in line with Government incentives. They want people to move; they want people to go to Canary Wharf. They’re using tax incentives to do it. I’d ask AJ to speak as well. It’s no different than ISAs. ISAs are a Government incentive for tax-efficient savings.

Q555 Mr Umunna: Sorry, Mr Diamond; I don’t have that much time and we want answers, not speeches. If I just ask you this question. If it wasn’t engaged in tax avoidance, why then did your bank injunct The Guardian in March 2009 when they sought to disclose the activities of that division within the bank?

Bob Diamond: Again, that’s not why we did it. I’m happy to explain. The information that The Guardian released had two features to it: first, it was already known to HMRC that it had the documents; we had sent them before the transaction. Our injunction was because someone stole confidential client information, which is against the law.

Mr Umunna: Okay. Obviously, the payment of tax by banks in the sector is of great interest to everybody and we’ve all been-

Bob Diamond: We paid £2 billion in tax last year to HMRC and over the last six years we’ve paid about £12.5 billion in tax. I think that’s the number you’re looking for.

Q556 Mr Umunna: Of that £2 billion, what percentage were non-payroll taxes?

Bob Diamond: I don’t have the percentages.

Q557 Mr Umunna: So it could be that most of that is actual payroll tax paid by your employees, but in terms of the corporate tax we don’t really know the figure, do we, Mr Diamond?

Bob Diamond: That’s the payment from Barclays to HMRC.

Mr Umunna: Yes, but what percentage of that was non-payroll tax?

Bob Diamond: I don’t have the percentages.

Q558 Mr Umunna: Then we don’t know what, as a corporate entity, you’re paying. Obviously, you are signed up to the new code of practice for tax that the Government has put in place, and that requires compliance with the spirit and not just the letter of the law. Will you commit today to reducing the number of offshore companies you are currently using to transact business, to demonstrate that you will comply with that code?

Bob Diamond: We have signed the code. We are complying with both the spirit and the letter of the law. That was what was asked of us, and we’re happy to do it.

Mr Umunna: So, will you commit to reducing your use of offshore companies to transact business?

Bob Diamond: I’m happy to look into the numbers that you gave. I didn’t have them, and it would not be appropriate for me to agree to something that I’m not sure of the facts of. I am happy to look into it and write to you and the Committee if that’s helpful. But it’s not a-

Q559 Mr Umunna: You will understand, Mr Diamond, if you look at the facts I have just presented, they would suggest that your bank is engaged in tax avoidance on a grand scale, would they not?

Bob Diamond: I can assure you that Barclays is not evading taxes. I can assure you that it is our obligation-

Mr Umunna: Sorry, that wasn’t the question I asked. I said "avoidance". I was very careful not to use the word "evasion", Mr Diamond.

Bob Diamond: I think "tax evasion" is a very clear phrase, and it’s a space we would never go to.

Mr Umunna: I know, and I didn’t use the word.

Bob Diamond: I chose the words "tax efficiency", which is our obligation, and it is something that is in line with Government policy.

Mr Umunna: Your "efficiency" may be our "avoidance". Can I just perhaps-

Bob Diamond: I don’t think that is the case.

Mr Umunna: You don’t think that is the case.

Bob Diamond: I will answer the question directly: I have a high degree of confidence in the integrity, in the governance and in the people that follow both the spirit and the letter of the law in terms of doing the right things in this space.

Q560 Mr Umunna: If I could perhaps ask one last question. One of the things that contributed to the crash, I think it is generally acknowledged, is reckless and perhaps risky behaviour in the sector. In some senses, there is a big question mark over your head, Mr Diamond, because obviously you sought to try to purchase ABN AMRO at the same time as it was purchased by RBS. You may well have ended up being the Fred Goodwin of the crash, and luckily for you that didn’t happen.

You also pushed very hard to purchase Lehman some time before it filed for a chapter in bankruptcy, and you are also a great fan of exchange-traded funds, which are also being questioned a lot at the moment. How do you respond to that, and do you understand, perhaps, why people don’t think you are suitable to be running one of the biggest banking institutions in this country?

Bob Diamond: I appreciate the opportunity because there is no substance to the accusations, so let me take them in their piece parts. They are very serious questions and they are very serious accusations.

So ABN AMRO: I was not the chief executive, but I was on the executive team that proposed that deal, and let’s walk through it carefully. In March 2007 we had an agreed deal with the board of ABN AMRO. That deal was going to be paid for in shares of Barclays, not in cash. There was then a hostile bid that broke up our bid by three parties led by Royal Bank of Scotland, who paid in cash, not shares. We paid in shares because if there was a market event and our shares traded down, the price we paid would flex down. RBS chose to have another bank, Santander, come in and take the Italian operations and the Brazilian operations, and I recall John Varley being interviewed saying we would not do a deal without the Italian operations or without the Brazilian operations, and that we would not do a deal in cash and that we would not raise the price to their level. So we walked away.

The Italian bank was sold for €10 billion within two months, and today the market value of the flotation of the Brazilian operation is greater than the market value of Royal Bank of Scotland. To compare those two deals the way you just did is inappropriate and not based on fact, and it’s not appropriate to the reputation of Barclays and Barclays management.

In terms of Lehman Brothers, we were in consultation both with our own regulator and with the US Treasury and the US Federal Reserve, and what we proposed on the Saturday morning before bankruptcy is that we would be interested in buying and we would make a proposal under three conditions-and this is documented. Our condition 1 is that the 60 billion in difficult-to-price toxic difficult assets, illiquid assets, the illiquid private equity in the commercial real estate, were taken out of the deal, and that was agreed. The second condition is that we would have a guarantee from the Federal Reserve Bank of New York for clearing and funding on Monday morning for as long as it took for us to get a shareholder approval that we could provide that guarantee. If those two things were approved, we would then recommend the deal to the FSA.

The first of those two was finalised: the exclusion of the 60 billion in toxic assets, illiquid assets and hard-to-fund assets. We did not get a guarantee for funding and clearing. We worked until Sunday morning and therefore we never proposed a deal to the FSA, but we were very careful of our risks in doing the deal that we were ring-fencing away from Barclays, and away from any UK risk, the assets that were troublesome. So I think that’s a much different perspective on each of those two transactions than you gave.

Q561 Mr Umunna: Just in relation to the second of those, didn’t you say to a court over the summer in New York that, frankly, you didn’t know what you were buying when you bought Lehman? You said there were huge gaps and misinformation.

Bob Diamond: Well, if you take the complete testimony that I made, because of that we priced them accordingly. There were many assets. If we couldn’t tell what was there, we would price them at zero. So we didn’t take risk for our shareholders or risk for the UK in doing it. It was why the pricing of Lehman Brothers ultimately reflected the volatility in the market. There were other assets that we took where we did know the market price and felt that there was liquidity that we could transact at those prices.

Chair: Thank you for those full answers.

Q562 Stewart Hosie: Thank you. Mr Diamond, the bank needs to look after the interests of and benefit its shareholders, staff and customers. How would you prioritise these three groups?

Bob Diamond: Shareholders, staff and customers-I don’t know how I could prioritise them other than saying they’re all number one.

Q563 Stewart Hosie: They are all number one. Okay, but shareholders have seen the dividend go down from 34 pence a share in 2007 to 2.5 pence in 2009, and you have paid out 3 pence only in 2010-a peak-to-trough fall of 90%. What’s happened to staff remuneration over that period?

Bob Diamond: I certainly don’t have the figures, but we don’t relate directly staff remuneration. As I said earlier, the remuneration of staff is a function of paying for those people that perform and not the people that play up. It’s in line with the G20 principles and the FSA principles. It has governance from our board and the objective is to have the best businesses that we can have.

In terms of dividends, it’s a difficult environment for dividends, as shareholders know, because the regulators would prefer that most financial institutions would build their reserves and build capital, so it has been difficult for investors who are relying on dividends.

Q564 Stewart Hosie: I understand the need to back the balance sheet. I understand the capital requirements. Let me tell you what you did in terms of total staff costs. In 2007, you paid £8.4 billion, £7.2 billion in 2008, £9.95 billion in 2009 and it is pretty likely the figure won’t be much different from that for 2010. It was reported also by the Telegraph in December you are backdating salary increases and you have more than doubled the basic salary cap. It strikes me that the shareholders are coming off very poorly here, as the staff continue to be rewarded in large measure by bonuses. Why are the shareholders being treated like this?

Bob Diamond: I think we have to continually come back to compensation and, listen, I understand there’s a lot of debate in the area of bonuses. There’s a lot of sensitivity. I am committed as chief executive to being responsible and to providing any restraint I can. I can assure this Committee that bonuses aren’t taken lightly and that we pay what is appropriate to pay for the reasons I went through, and to have the best business that Barclays can have.

I wish I could isolate bonuses and say, "I’m going to have a good Barclays Capital and I’m going to have a good Barclays retail bank, but I’m just going to decide at the end of the year not to pay anyone", but it’s not that simple. This is a business where all these pieces integrate together.

We had a mention of BZW earlier. From big bang in 1986 until 1996, the investment bank of Barclays was BZW. I’ll be frank; it didn’t pay very big bonuses. I’ll also be frank; it never earned its cost of equity. It was a business that had a weak client base, a weak international position and had a lot of pushback from shareholders who said, "We don’t want you to be in that business". I am so proud of Barclays Capital. It’s the only global investment bank that’s been successful that’s been built from scratch.

In 1997, we began building that business and today it’s in the top three in the world in fixed income. It’s in the top three in the world in commodities. It’s in the top three in the world in raising funds for corporates. It’s in the top three in the world in debt capital markets. It’s growing. It had an absolutely fantastic deal with Lehman Brothers to make it an even stronger organisation. It’s client-based. It’s client-focused. It deals with the pension funds in the UK, it has been profitable every year since 1998. It’s been at the top of the table in terms of returns on capital, returns on equity and a lot of the investors in Barclays are investors in Barclays today because of the success of Barclays Capital.

Stewart Hosie: Mr Diamond, finish the answer.

Bob Diamond: I will wind it down, I apologise.

Stewart Hosie: No, finish the answer. No, it’s all right.

Bob Diamond: I know it’s long, but I will try and finish. This team could not have built Barclays Capital if we couldn’t commit to our people that we’re going to pay for performance, not failure, and that we’re going to do it in line with the competitors. Barclays Capital doesn’t compete with Lloyds or Northern Rock. It competes with JPMorgan, Deutsche Bank, Credit Suisse, Morgan Stanley and Goldman Sachs. So we can’t isolate bonuses and say, "Let’s leave everything else in the business the same and just take out bonuses".

Stewart Hosie: Mr Diamond, I understand and I’ve allowed you to speak about Barclays Capital.

Bob Diamond: Thank you for that. I apologise.

Q565 Stewart Hosie: You’re obviously very proud of it, but the fact remains that it is the shareholders who own this. Is it not the case that in terms of bankers as a whole, the bonus pot will be bigger than the shareholder dividend? Is that not the case?

Bob Diamond: I can only answer it the way I answered it before, which is that there is not a direct relation between those. Our shareholders are very supportive of Barclays Capital as a business and the returns it’s given them.

Stewart Hosie: I’m sure they are, but if don’t have that information to hand, we can move on.

Bob Diamond: But if you’re sure they are then you would understand why we can’t isolate one piece of how we run the business.

Q566 Stewart Hosie: I understand your universal integrated model perfectly well. I’m simply trying to understand why the shareholders are receiving a 90% reduction in their returns while the bonus pots have remained rather significant. Can I ask you: do you decide on the bonus pools before the dividend?

Bob Diamond: The dividend is decided during the year, quarter-by-quarter and half-by-half, so I would say it’s actually the other way around. But it’s not quite fair to say that because bonuses are managed and accrued during the year, so you have some line of sight. I think it would be fair to say that they are both managed in a similar time frame.

Q567 Stewart Hosie: Okay, do you think the balance between the bonus and the shareholder dividend is right?

Bob Diamond: I don’t think there’s a direct relation between the two, but let me answer it a different way; I think I’ll ask Antony to speak as well. If you’re asking us whether we are happy with our share price, we think there’s a lot more work to do to get the share price up.

Q568 Stewart Hosie: Let me just finish on the share price issue, because that’s very interesting. The late Sir Brian Pitman told the Future of Banking Commission that bankers should be rewarded for generating long-term sustainable increase in shareholder value. Do you agree with that, and what length of period do you consider to be "long-term"?

Bob Diamond: I think that there’s many measures that we should be held to. There was a period of time when TSR, total shareholder return, was held as the best judge of management performance. I think we would say that that probably doesn’t have as much acceptance with our owners and shareholders today as it might have years ago, so we’re shifting and going to shareholders this year on more of a balanced scorecard, where it’s return on risk-rated assets, return on equity risk management in terms of loan losses, and, most importantly, corporate and social responsibility.

Q569 Stewart Hosie: Does that cover up an embarrassment that the share price, which was at 548.75 pence in 2001, was set at only 272 pence on 5 January this year?

Bob Diamond: If you’re asking Antony and me if we have a job to do to continue to increase the share price, we do. It’s a high focus of ours and we should be held accountable.

Q570 Stewart Hosie: Can I just ask one final question, just on the bonus?

Chair: A very quick one.

Stewart Hosie: Very grateful. You said that you don’t take bonuses lightly. You said that bonuses are not taken lightly. Do you understand how toxic this issue is in the real world, when people can’t get mortgages, when businesses can’t get credit lines? When they hear about £7 billion or £8 billion bonus pools across the banking sector, do you understand how toxic this is in the real world?

Bob Diamond: We are sensitive. We are listening. I think one of the reasons I was looking forward to today was to have an opportunity to try to put some balance and some understanding. I think one of the things I have to hold myself accountable for, and as an industry, is we’ve done a very poor job over the years of explaining how the compensation process is integrated with all the other aspects as I talked about. We’ve done a poor job of explaining how investment banks, in particular, contribute to society and contribute to our clients. I certainly pledge to do more in that regard.

I am very, very proud of our 150,000 employees around the world and how they performed in three very, very difficult years. The reason I’m most proud of them is how they have increased their client business and client service. I’m sure you’d like to say a few words. But that doesn’t mean for a second that we have everything right. I’ve certainly made mistakes. I think banks have learned during this process. I think we’ve had positive changes in the regulatory environment, but there’s no lack of effort on our part to recognise and be responsible in terms of being sensitive to this issue.

Q571 Chair: Before passing over questioning to John Mann, could I just clarify one thing? In response to questions from Chuka Umunna, did you agree that you will provide us with a breakdown of corporate tax pay versus payroll tax?

Bob Diamond: I didn’t, but I’m sure we can do that. What I was committing to also is-I wasn’t familiar with the numbers you had.

Chair : You are going to come back on that, as well?

Bob Diamond: I will come back on that, yes, sir.

Q572 Chair: Would you also at the same time come back on what you consider to be your fiduciary duty with respect to maximising tax efficiency? You don’t need to answer that now, but that seems to be a relevant question in that area of the cross-examination that was not covered.

Bob Diamond: We have signed-I forget the phraseology; I think it is a business practices code.

Chair: Come back to us in writing on it.

Bob Diamond: Yes.

Q573 John Mann: Mr Diamond, on how many occasions have the Prime Minister and Chancellor met with you personally, looked you in the eye and asked you to feel restraints in the size of your bonus?

Bob Diamond: They have not.

Q574 John Mann: They have not. Can I ask you a philosophical question? Why is it easier for a camel to pass through the eye of a needle than a rich man to enter the Kingdom of Heaven?

Bob Diamond: Do you have another question?

Q575 John Mann: I have another question if you can’t answer that one. You will have heard of the banking term "moral hazard". Have you heard of the new banking term "moral haze"?

Bob Diamond: I have not.

Q576 John Mann: Moral haze is Barclays Bank freezing the accounts of its Jewish customers during the Second World War. It’s Barclays Bank in the 1980s trying to pay for anti-apartheid activists to go to South Africa in order to whitewash the apartheid regime. Moral haze is not just about paying excessive salaries and bonuses when you helped to create the crisis, but then shrouding them in secrecy. It’s the use of backdating. It’s the use of independent offshore companies and the loaning of money to such companies to buy toxic assets. It’s the use of supplementary salaries. My question of you, Mr Diamond, is: why are you worth all the money that you are paid?

Bob Diamond: I wouldn’t know where to begin; you threw an awful lot of accusations out there. I think you ended with a question. All I can say on my own remuneration is that’s a decision that the board takes. I don’t take it.

John Mann: I threw in a lot of facts-not accusations, facts.

Bob Diamond: I’m not sure of that.

Q577 John Mann: You’re not sure? Well, they are facts, recorded known facts. You gambled and you won. Somebody had to win. Somebody had to lose and the rest of us lost. Some banks lost, but the taxpayer lost. People who are losing services or losing jobs in this country, across the world, lost. But you were partly responsible, weren’t you? I mean, you tried to bat the question of your role with, for example, ABN AMRO, but you were part of the bidding war. You were part of the cheerleading, in the middle of it, but the media cheerleading alongside, in order to try and expand the size of the bank. You were up against some that were even more reckless than you. Those are the facts, aren’t they? You were part of the problem that we all now have. Isn’t that the case?

Bob Diamond: No, we don’t think so. I understand you’re coming at it from a different direction, but we felt our obligation was to our owners. Our obligation was to our customers and our clients and our employees, our regulators, and we had complete transparency with all of them on our ambitions for ABN AMRO. We felt a number of things, but in particular an opportunity to invest in an outstanding retail bank in Brazil and expand our retail banking operations, which are in Portugal, Spain, a little bit in Italy with the Italian operations, were very positive for our owners and our shareholders, good for our clients and customers and employees.

Q578 John Mann: We have had RBS in and we questioned them. You and they were after the same thing. You said at 11.03am today that it was your duty "to show any restraint that I can". So will you agree to take no bonus this year?

Bob Diamond: I haven’t been offered a bonus and that’s a decision that the remuneration committee will be taking over the next few weeks.

John Mann: Of course it will, but what you stated at 11.03am is that it was your role "to show any restraint I can". So I repeat the question: if offered a bonus this year, will you agree to take no bonus this year?

Bob Diamond: Last year I made a decision to waive my bonus. The year before that, as you know, I made a decision to take no bonus. At this time last year, I had not been awarded a bonus and today I have not been awarded a bonus. The process has not taken place yet. I know it is a long-winded answer.

John Mann: Of course it hasn’t, but if you are offered one, will you agree this year to forsake it? As you say, your role, to quote yourself, is, "to show any restraint I can".

Bob Diamond: I think the best answer I can give you is to go back to how the process works, and if I was going to make a personal decision I’d make the decision with my family, as I did last year.

Q579 John Mann: Some people would like to know why, after the sanctions-busting of Barclays with Iran, Sudan, Burma and others, there aren’t Barclays executives in prison. But I want to know whether there are any supplementary salaries being paid by Barclays to try and mask the overall pay and remuneration of your top people?

Bob Diamond: You’re not a big fan of Barclays, are you?

John Mann: I am a big fan of getting answers from you.

Bob Diamond: What question would you like an answer to? There’s no secret compensation. I’ve been through the governance structure; the shareholders ultimately approved the remuneration report. We have an independent board remuneration committee that decides all compensation matters. To be quite honest, I’ve been through the governance and the process and the adherence with the principles of the G20 and the FSA. My obligation is to run the best business I can run for the benefit of our owners and shareholders, but also for the benefit of society.

Frankly, the biggest issue for Antony and I is: how do we put some of the blame game behind us? There’s been apologies and remorse from bankers. Today, how do we get banks in the private sector? We have over £1 billion of cash sitting on the balance sheets of UK corporates. They don’t have the confidence in the economy. They don’t have the confidence in banks being back and confident and willing to take risk. We need a dose of confidence. We need to think about what’s best for the economy in the UK and what’s best for jobs in the UK.

Q580 John Mann: Can I take it from your answer that you’re assuring us that there is no use of backdating? This year there will be no setting up of independent offshore companies? There are going to be no supplementary salaries paid by Barclays?

Bob Diamond: Our governance is very strong and I don’t know-

John Mann: Whether it is transparent is the question.

Bob Diamond: I’m having a hard time following the question; I apologise. There are no secret compensation arrangements-I can assure that, yes, and there haven’t been in the past.

Q581 John Mann: Let me finally ask you the question I asked before. Why is it easier for a camel to pass through the eye of a needle than a rich man to enter the Kingdom of Heaven?

Bob Diamond: I’m still stuck on that one.

John Mann: We call it business ethics.

Chair: People have been stuck on that one for many thousands of years now. You did provoke it though, Mr Diamond, by starting with 1690, and you would expect the Committee to move back a bit further than that when you get on to historical analogies. Can we have John Thurso please?

Q582 John Thurso: Can we look at bonuses-not in relation to either you personally or to Barclays, but just to be a little theological about it all? There is this big number of £7 billion as being a pot that is out there, and there is a civil war that has been going on between Government and banking and between politics and banking, which is probably not terribly useful to either politics or banking. So I would just like to try to get to understand what the bonuses are and why they are necessary in banking. Who gets a bonus and why?

Bob Diamond: If we step back from that for a second, no matter what role you have in Barclays, 150,000 people, whether you’re entering orders from clients in Glasgow, whether you’re working in Bangalore, in one of our service operations or whether you’re a trader on the gilt desk in the UK, our objective is to evaluate and put people in that role who are the best possible people for that job in that location at that compensation level.

When we’re hiring those people, we’re always thinking, "What’s the appropriate compensation for those people in that job, in that country, in that role?" Whether it’s in operations that Antony runs in Africa or India, or whether it’s in operations here, that’s our starting position. I think a lot of the noise is in investment banking where some of those positions have higher benchmark compensation. As I said, in building Barclays Capital, we never had an objective of paying more than was necessary to pay to do the business.

Q583 John Thurso: Can I ask you as part of that answer to say why it is that bankers need so much performance-related pay? If you do an analysis of senior executives in many other companies, the amount that is paid as salary to just do the job because you’re a competent professional and the amount that is paid for doing particularly well and achieving targets is much more weighted towards the salary, whereas if you look at banking, the salaries are smaller and the bonuses are much, much bigger. Why is it that bankers-not surgeons, soldiers, manufacturers or anybody else-need to have so much performance-related remuneration in order to do their job?

Antony Jenkins: If I might make one point: in the retail bank, for which I’m responsible, we employ about 35,000 people in the United Kingdom. The median salary for those people is about £25,000. That is about the average. The bonus component would be between £1,000 to £2,000. So for the vast majority of our colleagues within Barclays it is exactly as you’ve articulated. The philosophy of compensation at Barclays, as Bob has said, is very much to pay for performance. We use that £1,000 to £2,000 to incentivise our colleagues to go above and beyond in the course of the year.

Q584 John Thurso: I do not want to ask you specifically about Barclays-and we have this number of £7 billion; it might be £6 billion, or whatever-but how much of that big pot is going to the people you describe? Because obviously if you have a great many small amounts, you can get to a big number. How much of that big pot is going to the guys who get the telephone numbers that everybody reads about in the headlines?

Antony Jenkins: As a rough guide, between 8% and 10% of our total employment costs in the retail bank around the world goes in what would commonly be referred to as bonuses. That is for the retail bank. The retail bank around the world is about half the total employee base of the Barclays Group.

Q585 John Thurso: I understand that, and I’ve also looked at the numbers of all the banks, and remuneration varies between about 35% and 45%, but that includes the bonuses. But my question was not actually that. My question was: how much of the total pot goes to those kinds of people? Say it is £7 billion, for the sake of argument. Is £5 billion being paid out in £1,000 bits to hundreds of thousands of employees around the world and £2 billion going to people who get very big amounts? What is the relationship, roughly?

The point about this is that if we are all screaming at you for £7 billion, and it is made up of lots of small amounts to lots of deserving people, then maybe we need to rethink, but if 10% is going to those people and 90% is going to 100 people, then maybe you need to rethink.

Antony Jenkins: I understand the question and the visibility that I have is into the businesses that I am responsible for. I don’t have the same detailed visibility, as you would understand, into other parts of the group. I think it would be fair to say, though, that our piece of the total compensation bonus pool would be relatively smaller than that of Barclays Capital, for obvious reasons. The point that I did want to make, though, is-

Chair: Perhaps you can give us a rough percentage. Can you do that for us, please?

Bob Diamond: I think, to your point, the majority of what is often described in the industry as "the pool" is in investment banking. I think that’s what you’re asking. I don’t have the percentage off the top of my head, but it’s the majority.

John Thurso: But probably more than half?

Bob Diamond: Yes.

Chair: Perhaps you could provide it. We recognise the competitive aspects to this, for you as a firm, so you can put it roughly.

Bob Diamond: I think I can give you a rough breakdown, yes, without compromising the competitive nature.

Q586 John Thurso: The question I come back to is: why do bankers in that area of investment banking need so much remuneration? Supposing they were getting £2 million a year, will they work harder for £4 million or less hard for £1.5 million? Or are they competent keen professionals, like you, who probably wouldn’t work any harder or any less hard whether you doubled it or whatever? I am trying to understand why it is necessary.

Bob Diamond: They are questions we ask all the time, and that’s why we benchmark all the time. As I said, most of the higher-paid people have no guarantee in terms of their compensation. To your earlier question, which is, "Why is it a smaller salary and a higher incentive?" it is so that we can be flexible, based on performance.

I think the situation we face is that in order to build a business like Barclays Capital, in areas like equity capital markets, we’re competing with Goldman Sachs, with Deutsche Bank, with JPMorgan. One of the things that our remuneration committee stays very close to, and we have outside consultants that help provide it directly to them, is to benchmark both the performance and the compensation. One of the tough questions-and I said this earlier-is you can’t just isolate compensation and assume that all the other performance is there.

The other option is that we don’t have investment banks located in the UK. I don’t know how that makes the system safer or sounder if we have firms from the US flying in doing business here and then going back to the US or going back to Germany. I do believe that having a UK-based investment bank in Barclays Capital, competing for the best talent in the world, doing business with our UK companies and our UK corporates and being located here, is an advantage to the UK. It’s not a disadvantage. I don’t know how the system would be better if these people were just located offshore.

Q587 John Thurso: What we’re getting to the heart of is that you at Barclays and no other bank can get off the bonus treadmill. If you wish to exist, and if you wish to exist in the UK, you will be competing with all the people you’ve named throughout the world, because that is the system.

It’s not about money; it’s just about measuring how good they are. It’s just a way of getting more brownie points, almost. If you want the top guys, the guys who measure themselves, whether it’s in Learjet options or in whatever it is, you’re going to have to pay for them. And if you want to be here, you’ll have to pay them here. So the question is much more of a one for society: do we want that? If we don’t want it, then we have to give up merchant banking and investment banking in the UK. That’s the choice that is before us.

Bob Diamond: Yes, but I think it’s a bit more nuanced than that. Would you feel the same way if it was a US-based firm with people located here, as it is with a UK-based institution with people located here and in New York? Many of our high-paid people in Barclays Capital don’t reside in the United Kingdom and don’t do business here; they’re in the US, Japan or China. The benefit to the United Kingdom of having Barclays Capital are all the benefits that come from having us located here because we are doing business in China.

That works in a couple of ways, John. That works with our UK corporate. If you look at the FTSE 250, over half of the revenue of the FTSE 250 companies comes from outside of Britain. We’re able to work with our closest clients, because we are the number one investment bank for that UK client base, when they’re doing business in China and in India. Tesco is a good example. Almost all of their job growth and investment has been in China and India-or a large portion of it; I shouldn’t say "all" of it. That’s an overstatement, and I apologise.

Equally-and this is a very important thing-traditionally, if I said, "Where are the 500 biggest companies in the world located?" everyone here would kind of think, "US, UK, maybe a few European countries". And that’s been true. Five years ago, only 8% of the top 500 companies in the world were located in Asia. Today, it’s almost 25% and by 2015 it’s going from one third to 40% of the 500 biggest companies.

Some of those are UK and US companies relocating, but many of them today are the SMEs or small businesses in China or in India that are growing. I think, in the UK, we want a bank that has the capacity to service those people, as well as service a farmer in Wales and a small business, because the farmer in Wales needs access to the kind of things that we can do and the skill sets that we have, because of those operations. I do think that this is ultimately a decision of: why would the United Kingdom not be proud to have one of the world’s best investment banks located here? But there is an option to say we only want foreign investment banks doing business with our UK business.

Q588 John Thurso: At the end of the day, the point for policymakers is that it isn’t the plain vanilla choice of having jolly good merchant banks, but we won’t pay them bonuses.

Bob Diamond: Right.

John Thurso: We either have to accept your bonus culture, because we can’t change it, or we end up without the banks. That is the actual nub of the question.

Bob Diamond: And accept that it’s competitive. It’s benchmarked. There is good governance. There’s good management. There’s claw-back. All the things that we’ve talked about we can do: the FSA principles. But I think you got to the heart of the question, yes.

Q589 Mr Mudie: Can I just put it to you a different way, less friendly - not unfriendly, but more blunt than John? A teacher or a nurse, or even a surgeon listening to this conversation would wonder why you cannot motivate people other than by paying them huge bonuses. I’d like to put it this way. You’re into football. Last weekend, Sir Alex Ferguson, Fergie, was playing hell about agents . H e said, "Do you know what one of them tried to do? We went to sign this striker. We offered him the usual Premier League wage for a good striker and his agent said, I want a bonus for every goal he scores and Fergie says to the directors, ‘What the hell are you thinking about? Why did we pay that money for him and why are we paying that salary? We expect him to score goals’."

Now that teacher, that nurse, is baffled by this because if you offered them a million quid and said, "Go through that wall", they’d go through the wall ; t hey’re going through the wall now for a pittance. Why do you have to pay these obscene bonuses to these self-styled masters of the universe to do a job when you’re paying them a very decent remuneration in the first place? Are you lacking something, Mr Diamond, in terms of motivation that you cannot pay someone £2 million or £3 million and expect them to deliver for £2 million or £3 million?

Bob Diamond: George, it’s a question I’ve been asked before. I myself have recognised, with now becoming chief executive, the number of references to me as an "American investment banker"; I think it has become one word now, not three words-"Americaninvestmentbanker". So you should know who I am, because I’m very different than that and I understand what you’re saying. I grew up in a small town in Western Massachusetts. My great-great-grandparents on both sides of my family emigrated from Ireland to Massachusetts. I was the oldest son of nine children. My mum and dad were both school teachers in the local community at the local schools. I learned at a very early age, earlier than I would like to admit, that if I wanted a new shirt or a football or a bicycle, I was going to have to pay for it myself. When I had an opportunity to go to a private college, I was the first member of many generations to do it. I paid my way.

Q590 Mr Mudie: This is very nice, but it’s not getting to the point, is it? You have me with tears coming down my cheek s . "My Irish - Scottish background"-oh, it’s wonderful. I can hear the bloody bagpipes going, but how does it-

Bob Diamond: I understand the benefits that I have had in terms of career opportunities. I understand the benefits that people have had in terms of financial rewards. But I’m going to come back to the point, and it was a point that has been brought up a number of times: one can’t just isolate bonuses and say we’re going to have all the other benefits of business, but just exclude those, because in certain businesses we’re dealing with a global talent pool.

Chair: Yes, okay. George’s question is-

Bob Diamond: What we can do is we can have good governance. I’m trying to get to the answer, Chairman, which is it’s benchmarked about-

Chair: Just to be very clear, George’s question is why, almost uniquely, does this industry require such huge bonuses?

Q591 Bob Diamond: I don’t think it’s uniquely this industry, but I think that doesn’t matter. I think the question is: why this industry? And I think the market and performance are what determine it in certain roles and certain jobs in the industry.

Q592 Mr Mudie: Okay, I think that’s probably about the best you’ll get, but I think you’re doing yourself a disservi ce. You said you were sensitive, you’re listening, you understand. We’re going to go through the w orst year we’ve had for decades. H undreds of thousands of people are getting their redundancy notices as we speak. The public sector is cutting; the Health Service is cutting. Pe ople are going to get very angry and the re is a lack of transparency and straightforwardness for the banks who, your own c hairman accepted, played a very great part in landing us where we are. If you’ve had a tough year and you think you’ve had some criticism, you haven’t. W hen ordinary people are on the street, losing their houses and cannot look after their kids, you’re going to get worse.

I can’t understand why you are simply not more up front in terms of the information. When you were asked about bonuses and income levels , you said, "It’s nothing to do with regulators; it’s nothing to do with Government; it’s a market and it’s a matter for the shareholders". The Chairman took you th r ough it. You’ll tell the shareholders everything except the level of remuneration for the bonuses you’re going to give to people. You’ll tell them after you’ve given them.

Now, Bob, put it in straightforward terms. If I were one of your shareholders-a big institutional one, mark you, because you’d pay attention to me rather than if I owned some shares-I own the business and I trust you and I’ve appointed you, but I’d still like to scrutinise what on earth is going on. Specifically , shareholders, on what you’ve said today, cannot scrutinise pay below board level. They also cannot have information on pay levels and structures of any staff earning more than the members of the board. Do you think that’s a way to treat the owners of the firm?

Bob Diamond: George, I would treat a small shareholder the same as a large institution. I certainly would for you. We are sensitive to the issues you raise. It is going to be a tough environment. Any way you look at it, it’s likely to be reduced employment in the public sector. We support the moves and honestly believe that the best thing we can do is to run this bank so well and to work so closely with our customers and clients, that we’re doing everything we can to help shift-

Q593 Mr Mudie: No, but what about your owners? If I were a big institution-the ABI has said on b ehalf of their members that they want this information. You are saying to the owners of the firm, "None of your business, I’ll tell you when you read it in the papers".

Bob Diamond: We’re not saying that.

Mr Mudie: That’s not acceptable.

Bob Diamond: We’re not saying that.

Mr Mudie: Well what are you saying then?

Bob Diamond: What we are saying is that our owners and our shareholders approve our remuneration report and are very supportive of us running the business the way we are.

Q594 Mr Mudie: Where is the level of individual bonuses for the investment side? I’ve gone through your remuneration report. It’s not there. It doesn’t tell you anything about the levels of bonuses you’re going to give to individual people, how many people are earning more than £1 million and who is the highest earner in the firm. It’s not you, surprisingly. So who is it? How many millionaires do you have on your books? Now, t hose are straightforward questions that I as an owner would say I’d like to know. Is that not reasonable?

Can I just ask you something? You might think I’ve been a bit hard with you, and I have been, but you’ve had the opportunity and Walker has put it on the table. I accept a bit of the argument about competition and competitors and so on. I accept part of that, but is there any middle groun d between your present position which is, "I’m not telling you", and Walker saying, "Put them in bands of specific"? It seems to me as an old negotiator that there’s a hell of a lot of space between you and Walker. It would be very well received , and you would be leading if you started to put some proposals on that said, "Yeah, we’ll give you a bit more transparency".

Bob Diamond: I appreciate you saying that and I think, as Sir David said, the proposals that he made on banded disclosure, which I think you’re referring to, would not be appropriate to be done in isolation without the European banks and the Americans.

Q595 Mr Mudie: No, I heard that, but I just put a position to you. You’re in Britain leading one of the leading banks. There is going to be hell on the streets in the months we ha ve, and for you to say, "Yeah, I understand-never mind Europe -I can live with this sort of transparency". At the moment , there is no transparency. Your position up to date, speaking to the Chairman’s first questions, was: " and there’s not going to be " . I don’t think that’s a sensitive listening approach, especially when there’s a fair bit of ground that you can move on without damaging your business.

Bob Diamond: I hear you. I do think that we’ll find consistency across the G20 and Europe over time, but I suspect it won’t be this year and we have made a decision, for commercial and competitive reasons, that we didn’t want to act alone, but I certainly hear you.

Q596 Mr Mudie: Bob, the great advice from anybody on this Committee is do not wait for Europe - do it yourself. You said that you were led by your customers, "I run a customer-sensitive bank". This is not an attack on you. You are supposed to be here answering questions on competition and choice in retail banking.

Bob Diamond: I was hoping you’d bring that up.

Q597 Mr Mudie: We are there at last. Which? suggested that , when they asked you r customers, 53 % of them declared themselves "satisfied" w ith the service they received and current accounts. This is you , Antony . Direct and Virgin received 88 % . Then we move to, "Would you recommend this bank to a friend?" Minus 35 was your score. Some of the other banks didn’t come out so well either, so I’m not having a go at Barclays, but is that not just an indication of the lack of competition - the lack of being able to switch, of publicity about switching and publicity about charges et cetera - that you can treat your customers like this and still retain them?

Antony Jenkins: Thank you. I’m very glad to be asked a question on this point. Firstly, let me say that the data that you are referring to from Which? does not agree with our own surveys. Our own surveys would suggest that about 90% of our customers would say they are satisfied.

Q598 Mr Mudie: Antony , when I was in l ocal g overnment , every survey we did said we were perfect, and I learnt very early on not to pay any attention to your own surveys, but there you are.

Antony Jenkins: The surveys that I’m referring to are conducted by an independent third party.

Mr Mudie: So was ours. We paid them , though.

Antony Jenkins: Let me answer your question.

Mr Mudie: Yes, sorry, aye.

Antony Jenkins: About 90% of our customers would say they are "very satisfied", "satisfied" or "somewhat satisfied". 5% of our customers would say they are "dissatisfied". About 80% of customers would recommend us to a friend or colleague. However, let me say that, firstly, I believe that the basis of competition in UK banking-UK retail banking, the purpose of this inquiry-is intensifying around both service and product provision. Competition is clearly there around price. It is our intention, in Barclays, to continue to improve the level of satisfaction that our customers have with what we do, because we know that that’s a competitive advantage. Ultimately, that’s good for our customers, but it’s also good for our shareholders and our colleagues.

Q599 Mr Love: I want to come on to project Merlin in a moment, but let me refer back to a question that Mr Ruffley asked earlier on about the Banking Commission. Would I be correct in interpreting what you said to the Committee as being that regardless of the recommendations of the Banking Commission, or indeed any legislation that might follow, Barclays headquarters will remain in London?

Bob Diamond: I think what I’m saying is that’s our intention. One can never make a guarantee, because you never know what’s going on, but I think that if there was any concern in this Committee that our intention to was move out of the UK, that’s certainly not our intention. We always have-

Mr Love: So all those media reports are inaccurate?

Bob Diamond: That’s what I’m saying, but I’m not giving an iron-clad guarantee. One never can on something like that, because you don’t know what’s happening, but I want you to rest assured that this is the place where we want to be.

Q600 Mr Love: How do you respond to the unanimous, I may say, headlines in today’s newspapers? I will choose one to quote from, but they are all pretty similar: "Ministers cave in to City over bank bonuses". Is that recognition that the Government has no role in this area?

Bob Diamond: I think there is, whether we like it or not, a role for Government in the banks that have a significant shareholding by the Government. It’s their right, since they have that. I think in terms of governance and all the things that I’ve talked about, there’s a role for Government, but I think we should be running our businesses in the best interests of our owners, of our clients and customers, of our employees and also our regulators, who are a part of the Government here. So I think it’s a balance of all those things, yes.

Q601 Mr Love: That is going to place additional responsibility on Merlin, these meetings that are taking place, but I will come back to that. Mr Thurso mentioned earlier on that the speculation is that the overall level of bonuses will be about £7 billion, which is slightly less than last year because of market conditions. The Government, through the Prime Minister, has been asking for further restraint. Barclays is estimated at £2.5 billion. It is suggested that your bonus might be somewhere in the region of £7 billion to £8 billion. Now, you have just taken over as the chief executive. What leadership are you going to show in exercising restraint in all of those areas?

Bob Diamond: I think most of the numbers that you’re referring to are speculation of the press as opposed to anything that we’ve reported. As I said, the businesses will meet with the remuneration committee and the board over the next couple of weeks to determine first the allocation of remuneration in general and then allocation to individuals.

Mr Love: Well, I understand that. You said that earlier on. What I’m asking you is you are now no longer the chief executive of BarCap; you’re the chief executive of Barclays PLC. That puts you in a leadership role. You have to exercise leadership. What leadership are you giving in relation to the request, made through Merlin, that banks exercise restraint in terms of the bonuses that they will pay this year?

Bob Diamond: Well, I think there are a couple of things. I think, as you know, there is a public record of compensation arrangements for the time that I’m chief executive going forward; that’s on public record, and I think it is in line with what would be expected for that role. Both Antony and I have also said that we recognise the need to be responsible and show restraint. We have no intention of paying more in bonuses than is necessary to balance all the things, and to all of you, we’re reaching out to say we recognise the importance of a safe and sound financial system, but also the importance of jobs and economic growth. We can’t isolate bonuses completely and pretend that the actions on that would have no consequences on the rest of the business. We have to balance these things, and we’re going to make decisions that we believe will be in the best interests of the United Kingdom.

Q602 Mr Love: If I may say so, there are lots of reports going round. The view that has been taken in the City is that the time for gestures has passed-"gestures" meaning what happened to bonuses in the last two years. You are signalling nothing today that real restraint will be exercised. Are you going to give leadership in relation to this? You are the chief executive of one of the four or five biggest banks here in the City; it is incumbent upon you, if you so choose, to exercise restraint and I would ask you to tell this Committee in which ways you will give leadership in exercising that restraint.

Bob Diamond: I think I’ve answered the question very directly, and I’ll do it again. I think we have to balance the responsibility we have and the recognition of the environment we operate in. I think we have to recognise that the system needs to be safer and sounder in terms of how compensation works, but I also think it’s in the best interests of everyone in this country that we shift the mantle of growth to the private sector and that banks in the private sector have competence, work together and are willing to take risk. I don’t agree, sir, that I can isolate bonuses and assume that actions on those have no consequences on the rest of the business. I have to balance it. That’s my job as chief executive.

Q603 Mr Love: Well, let me come to project Merlin. These are the meetings that have been taking place between the chief executives of large banks and financial institutions and the Government. Your predecessor was very prominent and in a lead role in relation to that. Do you intend for Barclays to continue to play that lead role, and what discussions-I was rather surprised to hear in an answer earlier to Mr Mann that you have not had any meetings with either the Chancellor or the Prime Minister in relation to Merlin or what it’s choosing to do. What role are you going to play in Merlin?

Bob Diamond: I apologise if I answered the wrong question; I thought the question was directly about my compensation. I have had meetings on Merlin. I’m very involved, but as you mentioned, John Varley has taken the lead in those discussions and there certainly have been discussions between John and other banks and both the Chancellor and the Prime Minister. I will say that this was all secret, so no one knows about it-or private, I should say-but it’s certainly been in the papers, so I don’t want to avoid having the discussion.

I’m pleased to say that John, although he’s handed over the reins as chief executive, has agreed to stay on, working with both me in my role as chief executive, and the board, around issues just such as this. He is still very active, with my full support and our board’s total support, in the spirit of trying to get an agreement on Merlin. So yes, we do hope to continue in that regard. I’m operating through John, but I don’t mean that in any way to mean I’m uninvolved. It’s just wonderful to have John, who’s taken a leadership role, to stay with the bank, to help us both with the Independent Commission on Banking and the information that they may need over the next few months.

Q604 Mr Love: I respond to your answer with some dismay. I would have thought that if Merlin was to be given the high priority that Barclays has given it up until now-this is no comment on Mr Varley; I know that he continues in a role within Barclays-but it needs the current chief executive officer to be totally engaged in that process. It comes as a surprise that you are not.

I ask you again: are you intending to give a lead in relation to Merlin, and not only in relation to the bank bonuses? Earlier on, Mr Ruffley asked about finance for small businesses, which is probably more critical, although perhaps less a current issue amongst the public. On those two issues, surely you must be directly involved?

Bob Diamond: Well, going with the small businesses, again, you’re absolutely right, and I hope we were as positive as you wanted us to be. It’s hard to give specific targets, just because of the risk management issue, and you can’t predict demand or who the customers are, but if I left any doubt that we are committed to serving the small businesses in Britain, I apologise, because it’s a business that’s extremely important to us and we recognise our obligation. Maybe you can say a few more words on that.

Antony Jenkins: And if I might, we opened 100,000 start-up accounts last year for small businesses. That’s the largest number of start-up accounts we’ve opened in the last five years.

Q605 Chair: How many did you close?

Antony Jenkins: We closed very few indeed. We’re there, supporting our customers, lending money. As Bob has said, though, demand for credit, particularly in the SME sector, has contracted because customers are less confident about the future.

Bob Diamond: But Chairman, we have the capacity to lend if there’s demand. We have a willingness to lend, and it’s not just because it’s the right thing to do-it is the right thing to do-but it’s also our core business. We like lending to our customers.

Q606 Mr Love: I have one final question. I would say in relation to small business finance that I’ve been bemused: on one side the banks are saying there’s plenty of credit out there available, and small business organisations are saying exactly the opposite. We have now had the Bank of England, in a very forthright report, saying the terms of much of the finance that is available are too onerous for many small businesses, and I do think the banking sector needs to look carefully at that. I hope it will do it through Merlin.

There is a final question I want to ask you, and in a sense it’s a plea. It reflects the two main public responses to what has been happening in our banks, and in particular in relation to bonuses. We are always told, "We’re all in this together". The Deputy Prime Minister tells us that banks live in a parallel universe to where everybody else lives, and I think that’s been reflected around the Committee today. What can you say to us that will get us to understand that you understand exactly what the public feel about the way in which these issues have been handled by the banking sector?

Bob Diamond: Well, I’ll give Antony a chance to speak to that as well, because it’s an important question. I hope today was an opportunity for me to give a different perspective and for me to give a perspective that, although I would like to be able to isolate bonuses and solve an issue around bonuses without consequences on the rest of the business, that’s not in my gift.

I’m a businessman. I’m running a business. And what I can pledge to you is that we’re trying to balance what our owners want and our shareholders want with what’s right for our clients and customers-whether a farmer in Wales or a businessman in Manchester-with 150,000 employees around the world, and a responsibility to the communities in which we work. At Barclays, we are very responsible to our communities.

I know-and I’m aware, and Antony’s aware and everyone’s aware-of the emotion around the issue of bonuses. So what I have pledged is that we recognise the need for as much restraint as is possible within the context of the other issues, and that we are responsible citizens of the world and citizens of the United Kingdom. We do pledge that.

Q607 Michael Fallon: When you were awarded your own bonus-I think it was £6.5 million in 2007-did the then Labour Government ask you to forgo any of it?

Bob Diamond: In 2007? I don’t recall anything to that effect, no.

Q608 Michael Fallon: When you decided to waive your bonus in 2008 and 2009, was that at the formal request of the then Government?

Bob Diamond: No, sir.

Q609 Michael Fallon: In fact, did the last Government ask you to forgo any of your remuneration over the last four years?

Bob Diamond: Personally?

Michael Fallon: Yes.

Bob Diamond: No, sir.

Michael Fallon: Thank you.

Q610 Chair: While we’re on remuneration-

Mr Mudie: That was a party political broadcast on behalf of the Conservative party.

Chair:-and trying to be a little less partisan, I want to clarify the position on information to shareholders. Can I be clear that shareholders have not asked you for any information at all about this year’s bonus round, and that you have not been in discussions with them about this year’s bonus round?

Bob Diamond: Other than the ongoing discussions we have with major shareholders around the issues I talked about in terms of the process, the governance-

Chair: Yes, we’ve discussed that.

Bob Diamond: Yes. Sorry, I didn’t want to give an incomplete answer. Other than that, there’s been nothing specifically asked for by shareholders, but I would remind you that we haven’t determined bonus pools yet.

Q611 Chair: Do you not find it surprising that shareholders-and you yourself have said that shareholders should play a major role, and that you are accountable to them with respect to remuneration-in this year, of all the most sensitive years, should not have even asked you for this information, still less tried to influence your decision?

Bob Diamond: The conversation is more nuanced, I think, than we’re letting on. There are-

Chair: Well, it’s pretty straightforward, is it not? Facts are what they need.

Bob Diamond: No, there are conversations all the time with shareholders around how we run the business, and cost and compensation are a part of that, so I think to jump to the conclusion that they’re uninterested-please don’t assume that our shareholders aren’t incredibly involved, incredibly bright and good at what they do. They’re very focused on evaluating Barclays as an investment. I think you’ve talked to many shareholders as well, so-

Q612 Chair: They are interested, clever and uninformed; I think that would be correct. Is there any aspect of what I have said there that you would like to correct?

Bob Diamond: I think they’re very informed about how we run Barclays.

Chair: But on bonuses, they don’t know what you’re paying.

Bob Diamond: They don’t have disclosure of individual numbers, that’s correct.

Chair: And they have not asked for them-so they’re recumbent, half asleep.

Bob Diamond: Well-

Chair: Okay. That is a matter for corporate shareholders.

Bob Diamond: I don’t agree with how you characterise our shareholders, no.

Q613 Jesse Norman: Mr Jenkins, did you say that there were 75,000 employees in the retail business around the world in Barclays?

Antony Jenkins: There are about 70,000, yes.

Jesse Norman: And their bonus compensation would be of the order of £1,000 to £2,000 on average per person?

Antony Jenkins: On average, yes.

Jesse Norman: So the average comp for them would be about £150 million to £200 million on that side of the business. Do I have that right? 75,000 times £1,000 is £75 million-

Antony Jenkins: You’re talking about the variable component.

Jesse Norman: Yes, the variable component.

Antony Jenkins: Yes.

Jesse Norman: Yes, absolutely, so it’s the bonus side, if you like. What was the bonus cost for the whole bank two years ago, Mr Diamond?

Bob Diamond: I do not have the number. I know the compensation-

Jesse Norman: Of the order of £2 billion to £3 billion, pre-crash?

Bob Diamond: Prior to the crash?

Jesse Norman: Yes.

Bob Diamond: Probably in that order.

Jesse Norman: So in other words, the retail side of the bank-the 75,000 employees of the bank, half the employees of the bank-earned, or can expect to earn if the compensation pot is about the same now, about 6% of the total bonus pot, and 94% goes to the 75,000 people who are not on the retail side of the bank, on those numbers?

Antony Jenkins: I think the math may not be quite as extreme as you’re articulating, but I’m-

Jesse Norman: Well, I am just drawing it out. I’m not making a claim.

Antony Jenkins: As we previously discussed, the majority of the variable compensation regarding bonuses would accrue to the Barclays Capital colleagues, and the reason for that is exactly what Bob’s been saying about pay for performance and the nature of the market.

Jesse Norman: Right, but it does look as though, just cutting through it, the least well-off employees in the bank are getting 6% to 7% or 8% of the bonus pot, and the most well-off employees of the bank are getting 94%, or around about that number, of the bonus pot. You do not disagree with roughly those numbers?

Antony Jenkins: Well, of course the logic is that the people who get more of the pot will be more well off, that’s right.

Q614 Jesse Norman: Mr Diamond, you have talked very eloquently about the bank taking deposits in 1690 and you have said that you could not be prouder of the build-up of Barclays Capital. You must have been thrilled to become CEO.

Bob Diamond: Yes.

Jesse Norman: Having not, as it were, the last time round when John Varley was appointed. All the more so for that feeling of running the business in the interim, the culmination of-

Bob Diamond: John Varley was appointed, and I was a big supporter of John’s, so, no, I was delighted. I said earlier it’s both an honour and I’m very motivated.

Q615 Jesse Norman: Would you have done the job for nothing?

Mr Love: A leading question.

Bob Diamond: Again, you’re asking about decisions that are not mine to make.

Chair: So these bonuses were forced on you by the Remuneration Committee.

Q616 Jesse Norman: I raised the topic in a serious spirit. We are looking at a car crash potentially taking place in front of our eyes over the next few weeks and months in the clash between public expectations and outcomes in this issue, and I have sought to be very serious about it. And I think the public is not just looking for the usual answers or guarantees of future well-being. It is looking for some kind of payback and some kind of recompense. I want to ask you, Mr Diamond, whether you would support the idea of a big society community fund into which your employees could be invited to voluntarily put, say, 10%, or a proportion, of their bonus-as a gesture of the kind of community leadership you have talked about before?

Bob Diamond: There are 60,000 of our employees who are actively involved in giving their time back personally to the communities in which they work. The amount of money that’s raised by putting a percentage of what we earn into our communities here in the UK and around the world, and the incredible amount that our employees give, both of their time and of their compensation, is something we’re both proud of and we encourage.

I think it’s difficult in a public hearing like this to talk about any specific initiative away from all the things that are done at Barclays, and the way that we want our employees to have a choice about those. Obviously, the big society has been part of discussions in Merlin, and I don’t feel comfortable in discussing it, but in spirit, do I think our organisation should be giving back to their communities? I certainly agree with you on that and I’d love you to come and spend some time on some of the things 60,000 of our employees do. It’s amazing. We give awards each year, and it’s wonderful to see. Whether it’s in Africa or whether it’s in Scotland, it really is around the world, so I think we agree in spirit. I don’t think it’s appropriate to discuss specific initiatives here.

Jesse Norman: Well, I would be grateful for the opportunity to do that and to put a specific proposal, if I might, to you in this area, because I-

Bob Diamond: I’d be happy to spend that time offline, yes.

Q617 Jesse Norman: A final question. It is evident from a corporate governance perspective that there has been a colossal failure of governance in the banking sector over the last few years, from which Barclays has largely been, shall we say, exempt, but many of them were run in the interests of their employees, rather than the shareholders. Now, in the venture capital world, the normal practice is that the investor gets their money out before anyone takes any profit. I don’t know if Barclays has a venture capital business, but I am sure that would be true of its business if it did.

Do you not think that is a more appropriate model within which some of the compensation arguments that are taking place should occur? Government should get its money back, the public should get their money back, and then the issue of taking a profit or sharing any profit should take place after that?

Bob Diamond: Jesse, let me make one thing perfectly clear. You and I don’t disagree in concept on many of these things, but I’ve been heard to say many times over the years that strong banks want strong regulation, and at first people would look at me like, "What are you talking about?" Being Barclays or being HSBC, where in this country a couple of large banks did fail and needed a direct investment from the taxpayer and from the Government-in the public’s eyes, too often we’re all the same. They throw all banks as bad, and there’s very little differentiation between them and Barclays or HSBC, who never put their organisation at risk and were profitable through difficult cycles and stayed close to their clients.

And I recognise it’s not pleasant for us at Barclays that so many of the people just say, "All banks are bad and all banks made all the mistakes". Banks did make mistakes. But I think we’re very proud that we managed through this period profitably, improving the lives of our customers and our clients and improving the financial ratios of the bank. I think that’s a different position to be in.

Q618 Andrea Leadsom: Mr Diamond, over Christmas I read my seven-year-old The Emperor Wears No Clothes. I feel very sad about this, because having a great fondness and a great familiarity with Barclays, I think there is some kind of fantasy story going on here. You talk about universal banking, and certainly I recall from Barclays days, the dream was to get a multinational corporate global banking-very rarely, if ever, achieved-and your argument for maintaining the status quo there is that multinational organisations need multinational banks, which I just do not agree with.

Your argument about attracting the greatest talent: everybody knows in every organisation you have perhaps 2% or 3% of true talent and the rest are all fungible. We could have countless discussions about that, but there is not that massive talent. Through 25 years in banking, I can absolutely vouch for that, as I’m sure you would over a few bottles of wine, in terms of, "Banks are going to move. If we’re nasty to them, they will move".

The evidence doesn’t stack up. There is no evidence that suggests that banks are all going to move. You said yourself today that Barclays is a UK bank and is likely to stay here. I’ve had similar discussions with lots of other banks. It’s extremely disappointing. You seem to just argue for the status quo for its own sake.

You were in denial to David Ruffley about the extent to which the taxpayer has supported you. You say that you are run by your shareholders, and yet we absolutely know that is not true. Corporate governance, particularly in the banking sector, has simply not been strong enough. They do not have enough information. You are denying a lack of competition in the UK and you are claiming high levels of customer satisfaction-hugely challenged throughout the industry-and you’re claiming to support SMEs, which the CBI and the FSB do not agree with you on. It just seems to me that the emperor has no clothes.

When we talked about bringing in a banker, I was jumping up and down and saying, "Oh, can we have Bob Diamond?" in the real hope that you would, as an investment banker, have a very clear, cynical and thorough perspective on what’s going on in the banking world, but you have given us nothing. And going back to what Jesse was just saying about who gets paid out first, surely the reason why bonuses are so obscene dates back to the days of the small investment banking partnerships, where liabilities were unlimited. That has simply gone, but the remuneration is upside only. It’s like playing blackjack: you keep playing and playing until you blow up, because there is no downside to you individually. Is that not the case?

Bob Diamond: No, I would disagree with many things you said.

Andrea Leadsom: Oh, good.

Bob Diamond: I apologise, because this is going to sound like I’m pushing back a little bit, and I suppose I am. To be perfectly frank, I don’t think your experience of BZW wouldn’t support exactly what I said. It was a very small domestic post-big bang UK investment bank. In its entire history, it never made any money outside of the UK or outside of its core UK business, and frankly, it was trampled by the US bulge bracket firms.

When I began with Barclays Capital and we sold parts of BZW and used parts of them to fold in, and because you talked about competition as well, one of the problems of BZW was there were only about 2% or 3% of people that deserved their compensation. What I was shocked at in my first year there was that over 30% of the people in BZW received no bonus. It was my first year, so I said, "We have to peel back the onion. Something’s going on. If we give them no bonus"-and you’d expect me to say this-"they’re going to leave". So we peeled back the onion, and of the 30% of the people that received no bonus, most of them hadn’t had a bonus in four or five years. They were unemployable and there wasn’t a focus on talent and there wasn’t a global talent pool.

When we began in Barclays Capital, I was very frustrated that Barclays, this prestigious 290-year-old bank-if I have my math correctly-was not even in the top 25 in foreign exchange in the world of doing transactions. And worse, I went to the UK corporate clients, Tesco, BT, and they were doing all their foreign exchange with Morgan Stanley and with Goldman Sachs, and I can see how wide the spreads are. By investing in technology-the BARX platform-which gets straight through processing to our corporate clients, by tightening the spreads so they get a better deal, we’re the first bank in three decades that’s moved into the top three in foreign exchange. We’ve wrestled back the UK corporate business from the US bulge bracket firms, and our customers are getting better business.

So yes, I do disagree with you. I think your experience of BZW supports exactly what I’m talking about in terms of talent, about focus and pay for performance, and we need to recognise that actions have consequences.

We do recognise that there is anger against bankers, and I have said we’ve made mistakes. I’ve certainly made mistakes, but I also feel I’ve been part of an organisation that has been incredibly successful during a very tough period and now wants to be part of driving economic growth, driving job creation and working more closely with the private sector.

We also support the UK Government. When they issued gilts to finance the deficit, those gilts aren’t bought by UK pension funds, they’re bought by the Bank of Japan, they’re bought by banks in China, and that takes an operation like Barclays Capital. It’s why we’ve been the lead manager of, I think, five of the last eight gilt operations or funding operations.

I think, as I have said, we can’t isolate bonuses. We would like to isolate bonuses and say, "Make this go away and let’s have everything else the same" but we can’t do that. I can’t do that as a job. It’s not within my gift.

Q619 Chair: That was a very broad question and you gave a very broad answer. Can I pick up on just one point Andrea raised, which was about unlimited liability, and link it to what you said right at the beginning, a couple of hours ago? What disadvantage do you think would pertain to banking, if chief executives were subject to unlimited liability?

While you’re thinking about the best reply to that, it is worth bearing in mind that you have now said yourself that there is anger against bankers that needs to be addressed. From the public’s perspective, might this not be an approach that should be considered?

Bob Diamond: Well, I think hopefully today is a good start at trying to see the other side of the story of the bonus debate, of why it is important to get balance and why this is important for job creation. I think if you start to think-

Chair: On the unlimited liability point, which is the question that I’ve asked.

Bob Diamond: Let me take on the issue of unlimited liability, but let’s take Bob Diamond out of it, take me personally out it.

Chair: I said "chief executives".

Bob Diamond: You own, you have a majority ownership in two UK banks. I think you hired a terrific person to come in and turn around Royal Bank of Scotland in Stephen Hester. Would you be able to attract someone of that calibre if there was unlimited liability? That’s the question you have to ask. You just hired another outstanding individual-his contract is also on display, it’s very similar to the others-at Lloyds in Antonio. Would you be able to have hired him? What would have been the best decision for the United Kingdom to get the best person with a track record like Antonio with a competitive compensation package, which is what he has-his is very similar to mine, and it’s very competitive. I think he is the best guy. As a competitor, I say Lloyds just hired a great chief executive. It’s going to be tough on me. That’s the right thing to do for the United Kingdom-

Chair: I understand.

Bob Diamond: -is to get those banks turned around, get them back into the private sector. Chairman, can I say one more thing? I don’t know of a single example in history-and I’d love to hear from all of you-where a nationally directed financial institution, over time, didn’t end in tears: the Landesbanks we’re seeing right now in Germany, the Cajas in Spain, Fannie and Freddie in the US, building societies to some extent here. Nationally directed financial institutions are not the right way to go.

Chair: But just to be clear, your answer to my question is you wouldn’t get the chief executives-

Bob Diamond: I don’t think you’d get a chief executive.

Chair: -you need for the job, and therefore, in Andrea’s terms, we have to carry on playing blackjack?

Bob Diamond: I really resent the fact that you would refer to this as blackjack or casino banking or rogue trading, and I’ve given the reasons why I resent that. I think it’s wrong, I think it’s unfair, I think it’s a poor choice of words. You have some fantastically strong financial institutions in this country-and frankly, they deserve better.

Chair: I’m sure you understand that we’re articulating many of the things that have been put to us by others.

Q620 Mr Umunna: I think the thing is, Mr Diamond, in some respects most people just think the system is screwed and we should change it-for want of putting it a better way. You’re saying to us, "That’s the system as it is" but I think if you-

Bob Diamond: No, I’m not. That’s not true.

Mr Umunna: You’re not? You recognise-

Bob Diamond: Let’s just talk about the changes in the last three years. Three years ago-I use Barclays as an example in the industry-Barclays operated on 5% equity. When the RBS transaction was approved, I think it was 2% or 2.5% equity, with their ABN Amro transaction. Today we’re at 10% equity. Our leverage was 35 to 1. Today it’s about 20 or 21 to 1.

The liquidity we hold on our balance sheet was £20 billion to £25 billion in cash or cash equivalents to make the system safe and sound. Today we’re running at £150 billion plus in cash or cash equivalents in the balance sheet. The way we do business, and one of my big challenges and AJ’s big challenges and our management team is how do we operate this institution-to your point on small businesses-with much higher cost of capital or much higher levels of capital and therefore higher cost of credit? How do we keep credit flowing to consumers and to small businesses, because you’re right, they’re reacting, and the terms of lending are much higher now than they were a few years ago. That’s how we have to go forward. We have to find ways to get that flow of credit back to business, even though the cost of credit has increased.

Mr Umunna: Can I ask again? You’re probably-I mean, I’m slightly bonused out right now.

Bob Diamond: That’s not a bad thing.

Mr Umunna: You’re probably feeling exactly the same.

Chair: It is the last question?

Q621 Mr Umunna: I want to actually move on to choice and competition. When we had Eric Daniels here from Lloyds, he was, to the incredulity of the majority of the Committee, asserting that your sector, across different markets-whether it’s credit card providers, mortgage lending or personal current accounts-was very competitive. This despite the increase in consolidation and market concentration that you’ve seen, and despite the fact that generally, in all of the different parts of the market I have just mentioned, there are five or six large providers that have a much greater share of those individual markets as compared to, say, in other countries-Germany, the US and France, for example.

Now, in the written submission that you put in on this point, you noted the significant change in consolidation in retail banking over the last few years that I’ve just talked about, but yet you conclude that the landscape remains competitive and dynamic. In some sense, that is exactly what Eric Daniels said to us. How on earth can this be, Mr Diamond?

Antony Jenkins: It is one of the fundamental questions that this inquiry is trying to address, and let me try and talk about it from a few different perspectives. First-and I think Mr Daniels made this point-there are many providers in the categories of personal current accounts, SME, savings and so on. The basis of competition in the UK is price; it’s also on product feature functionality and on service. If you opened up the financial press over the weekend, you would have seen that many of the papers were talking about a war for personal loan prices, certain mortgage categories getting much more aggressive, savings rates improving, so you do see evidence of price competition.

I would also say on service-and I would just like to refer back to Andrea’s point-we are in no way happy with the level of satisfaction of our customers at Barclays. We see that as a competitive advantage, and that’s why we’ve just, for example, retooled our debit card reissue process and collapsed the time it takes from seven to eight business days down to 48 hours. The consequence of that was one of our customers actually went through that experience and wrote to The Sunday Times saying what a great experience it was.

Why did we do that? Because we think we can get more customers, and serve more customers over time. I think whether it’s pricing, service or product feature functionality, we have over 170 open branches in the UK-with open counters, no bandit screens, no glass between us and the customer, and customers really like that. By the time we’ve done with refurbishing the branch network, there will be 400 branches with that facility. We have 8 million contactless debit and credit cards in issue in the UK. That’s four times-five times- what any other bank has, so we’re competing on price, we’re competing on service, we’re competing on product feature functionality. The question is, in a sense, is it getting more intense or less intense? Because I do think economic wisdom would suggest that you at least have to ask the question when a market consolidates.

Mr Umunna: I recognise some of what you said, not least because-

Antony Jenkins: And the final point I would make-

Mr Umunna: Sure.

Antony Jenkins: -and I’m sorry to be long-winded, but the final point I would make is, empirically, if you look at some of the other witnesses to your inquiry, in their evidence, they are interested in entering this market, and in many cases are entering this market; and they’re also picking off pieces of the market that they find particularly attractive. So my view is that the answer on the competitive nature of the market is actually quite complex, and we are probably seeing competition increasing with some of the new entrants that are coming into the market.

Q622 Mr Umunna: As I said, I recognise some of what you say. One of these branches you have just talked about has opened in the centre of the universe, which is my constituency. But I am not sure I buy what you’re saying, partly because if you, say, look in the personal current account market-and this is something that Andrea’s brought up with various people who have given evidence-there is very little switching by customers. Are you seriously saying that the disappearance of so many firms and the consolidation that there has been has not had and would not have an impact on competition?

Antony Jenkins: I’m saying that the question is quite a subtle one, so let me just talk as a practitioner, as somebody who is out there doing business every day. It doesn’t feel easy for me to go and win a current account, to win a savings account, to win a mortgage from customers. We have to go and compete on those things. The question of switching, which I know has been discussed extensively at the inquiry, has become better and has in fact led to an increase in the rate of switching.

Mr Umunna: It’s from quite a relatively low base, is it not, Mr Jenkins?

Antony Jenkins: And I would say that most customers would find that process relatively straightforward. Again, there was coverage in the financial press over the weekend making that very point. The other point on switching, of course, is that most customers have 2.4 accounts. Many of those are with different institutions, so they try before they buy.

Q623 Mr Umunna: How long would it take for me to change my accounts, say at NatWest, to you at Barclays or vice versa? Do you know how long? One thing that has come out in the evidence that we have received thus far is that it is incredibly difficult to change and switch and it takes some time and isn’t so easy, partly because of the transmission systems that are in place.

Antony Jenkins: Yes. My evidence is that switching would take between five to 10 business days to close the account and open the new one. There may be a period of two or three weeks after that when the direct debits get switched over, which is a process that is operated by the originators of those direct debits. At Barclays what we do is make sure that the customer is not disadvantaged in that process.

For example, we provide an interest-free overdraft for 90 days while everything settles down and the salary cheque comes into the account and so on. So the industry has, I think, come a long way in terms of making the switching process easier for customers. We do see switching in the UK, and in many categories of product we see intense competition. For example, Barclaycard right now has a 17-month balance transfer offer out in the market. That’s the longest balance transfer offer that there is out there. We’re very competitive on mortgage, on savings and so on.

Q624 Mr Love: I wanted to ask you a general question about barriers to entry, because others have come to the Committee and said that the implicit subsidy, the fact that there is such concentration makes it almost impossible for them to enter the market. But the question, in a sense, that I want to put to you is that it was ultimately put to us that if you had portability of account numbers, this would make the difference to switching and make it much easier. How does Barclays respond to portability of account numbers?

Antony Jenkins: Again, another topic here. On portability, our view is that the switching process has been made much easier. Now, of course it is possible to create a portable account number for customers. There is no doubt about that. With enough time and money, the technology exists to do that. However, in my view as a practitioner, the cost of doing that would be very significant-at least in the hundreds of millions, probably in the billions.

That cost would have to be recovered; ultimately, it would have to be paid for by the customer. The real question is whether the benefit of improving the switching process outweighs the cost. Our view would be that it would not. Essentially, in addition to the investment required to retool the whole payments infrastructure, there would be a massive opportunity cost in the deflection of technology and resources to that sort of activity, away from some of the innovations that I was referencing before in terms of branch refurbishment, mobile, internet, contact lists and so on.

Chair: Perhaps you can give us any further thoughts you have on that particular issue, which is of particular interest to one or two of us-several of the Committee-in writing.

Antony Jenkins: On account portability in particular, yes.

Q625 Stewart Hosie: Bob, you spoke about the increase in the tier one capital to 10%, the liquidity buffer increases to £160 billion and the leverage ratio reducing from 35 times to 20 times, and that’s all good. But in your submission, The Impact of Regulatory Reform on Competition, you said that prudential reforms to strengthen financial stability "will make it more difficult for banks to achieve target returns on capital that are acceptable to shareholders". I’m just wanting to check: you would not intend or seek to roll back Basel III in any way, would you?

Bob Diamond: No, not at all. It’s a good question. What we are saying, though, is that-the only difference I’d say to what you said would be it was core equity we talked about, not tier one. But if I said that to you, I want to apologise.

Stewart Hosie: No, it’s okay.

Bob Diamond: It’s hard to say did Basel come out perfectly-and you’ll get different views from people-but we think by and large these higher capital ratios do make the system safer and sounder, and we can operate within them. I would give a caveat that there are still some things that haven’t been certain. Is there an additional buffer for counter-cyclicality? Is there an additional buffer for strategically important financial institutions where we think we would fall within that? So it’s not final.

The other thing that’s been terrific, I think, is it has been truly a G20 co-ordination. As you know, the US banks weren’t even on Basel II, so to have the US banks in a different capital ratio-so we are broadly pleased. But what I would say-and I think this is important for the Committee to understand-is that if you look at bank returns on average before the crisis, they were kind of at 15% to 20%, but that’s not real. That was for a period of-what we all look at now and see, is it was, kind of, excess liquidity, very easy monetary policy and if I can say it this way, bank returns weren’t as challenging. So on average there were 15 to 20.

But if you look over 20 or 30 or 40 years, bank returns averaged more like 12% to 14%-10% to 12%, 12% to 14%. If we take into account the changes in the macroeconomics, deleveraging of consumers, deleveraging of corporates, that’s going to reduce the returns. If we look at the impact of Basel capital, that’s going to reduce returns, I would say by 3%, 4% or 5%. So you’re looking at if there are no actions-and there will be actions-then you’re down to, kind of, 4% to 6% in terms of average returns, and that’s the issue. And the challenge will be for banks to learn to operate in the new environment with higher capital.

Now, one of the challenges our shareholders really push me on is to convince them that Barclays can earn above the cost of equity, and that will be one of the things I talk about when I give the results presentation and my first chance to talk in February. So, Stewart, I think your question is the right one. This will put pressure on banks, and if I can say it this way, it’s going to be particularly difficult for banks with a weak model or a model that has weak performing units to it. So the difference between the returns of strong banks versus weak banks-banks maybe that have a bad business model or just a weak client base or carrying businesses that had sub-par returns-will get more and more challenging. So I do think, probably not as much in the UK, but I would expect across Europe to see significant restructuring of financial institutions.

Q626 Stewart Hosie: That’s helpful, and I am sure we might want to come back to that, but not today. Antony, in the same submission, talking about capital ratios and the rest, it said, "it would make entry into the banking market less attractive", but you have said in your last answer that you felt the competition was increasing. What would you do to mitigate the risk that regulatory reform would be a barrier to entry for new entrants, or do you really think that’s the case?

Antony Jenkins: Well, of course if you have to hold more capital to enter a market, it’s going to make the bar higher to get into that market, and I think that’s what the paragraph was referring to. What I was referring to in my remarks was that, what we see is empirical evidence of new players entering the market, not only in the consumer market, but also in the SME market, where we have some very focused players now coming back in-Albemarle, Handelsbanken and so on-that are starting to underwrite significant pieces of business. So notwithstanding the increased capital requirements, there are competitors who are either in the market, or seeking to increase their position in the market, or seeking to enter the market, because they believe they can extract profitable returns from certain segments of the market.

Stewart Hosie: In the knowledge that these new capital requirements will be there?

Antony Jenkins: Yes.

Q627 Mr Umunna: One very quick question on Basel III. Obviously, I think a 7% by 2019 capital requirement seems quite low to me, and I think Greenspan had suggested 15%, if I am not mistaken. Would you welcome having even more stringent capital requirements and what do you think about, say, 15%? 7% seems very low to me.

Bob Diamond: Well, keep in mind that we don’t know yet whether or not there will be an additional buffer for SIFIs-strategically important financial institutions-and certainly we would expect in the UK that a couple of us would be considered. Now, what the US regulators have said, what Secretary Geithner has said, is that he doesn’t think they should add to the 7% and he thinks it’s perfectly adequate. If you asked the US banks how they’re operating, they would say that 7% feels more like 10% or 11%, because no bank is going to risk going close to those levels. So on balance, I think it would be a mistake for the UK to be super-equivalent in terms of increasing the capital requirements for UK banks above the Basel rules in whatever is agreed.

Mr Umunna: Do you think the US guys are right on this?

Bob Diamond: I would like to see clarity and definity, and to some extent we feel like we can operate in any environment, as long as it’s the same for all of our competitors. My sense is that 7% is a pretty good change, and that if banks were operating with a cushion above that, at kind of 9% to 10%, that that would be a much safer and sounder financial system, but still allow us to be increasing capacity for lending and doing business. So as usual-and I know you know this-it’s a balance between the two. It’s been a balance between how we make the system safer and sound and how we encourage jobs, economic growth, lending and healthy risk-taking.

Chair: Thank you very much for coming before us this afternoon. It has been a marathon session of two and a half hours. We’ve ranged widely and we are very grateful to you both for coming. We perhaps have not done as much on competition as we should, but we’ve certainly touched on a number of important issues for the public outside. In normal conditions, some of the questions might have been considered a little intrusive, but I am sure you understand that these are not normal conditions.

Bob Diamond: No.

Chair: And we are very grateful for your evidence today.

Bob Diamond: Happy to be here, Chairman, thank you.

Antony Jenkins: Thank you very much, Chairman.