CITY grandee Sir Michael Rake, who ruled himself out of becoming chairman of Barclays following the Libor-rigging scandal, believes it will take at least five years before confidence in the financial services sector can be restored.
Rake, who is the bank’s deputy chairman, said politicians and regulators have taken an overly populist approach to dealing with the financial crisis but the public has now lost faith in all institutions except the armed forces.
Barclays was hit with record fines of £290 million from UK and US regulators as part of a global investigation into the manipulation of Libor, the London inter-bank lending rate.
In an interview with Scotland on Sunday, ahead of a talk on ethics in business, he said: “We need more discipline by the banks, politicians and regulators. It’s a five-year journey at least before things start to go in the right direction. It could go the other way – I hope it doesn’t.”
He added: “If we can establish a certain level of stability in investment, and we have a sensible approach to regulation with the banks, they’ll gradually be seen to be part of a turnaround.”
Rake had been seen as a favourite to replace chairman Marcus Agius, who offered his resignation in the wake of the scandal, but withdrew amid pressure from EasyJet founder Sir Stelios Haji-Ioannou, who wanted him to step down as chairman of the budget carrier because of his other roles. Rake, who is also chairman of telecoms giant BT, survived a shareholder vote in August and kept his role at the airline.
Agius will be replaced next month as Barclays chairman by Sir David Walker, who wrote a 2009 report into corporate governance at banks and last month said the industry needs to shift its focus away from short-term profits to rebuild its battered reputation.
While economist Professor John Kay and Standard Life Investments chief Keith Skeoch have recently highlighted the dangers of the City’s short-termist culture, Rake said all shareholders should not be tarred with the same brush, as some are long-term investors looking for steady dividend growth, while others seek short-term gains in the form of share buy-backs, special dividends and cost-cutting to raise share prices.
He said: “All business can do to re-establish confidence in itself is to do the things it’s best at, which is creating investment and employment and acting in a way that’s corporately and socially responsible. This is not done by adverts or making speeches, it’s done by creating jobs and wealth. You’ve got to do it and not just talk about it.”
Chris Cummings, chief executive of trade body The City UK, which has lined up Standard Life chairman Gerry Grimstone as its next chairman, said: “The buck has to stop with chairmen. They have to set the tone when it comes to acceptable behaviour on recruitment, pay and ethics.”
Rake, a former chairman of KPMG, told Scotland on Sunday: “Let’s face it, everyone’s at fault in this crisis. It was the politicians, regulators, banks, credit rating agencies, auditors and frankly speaking it was the investors and people who borrowed because they wanted to spend too much money.”
He said strong political leadership is needed to create more confidence in the global economic outlook, along with more certainty in the regulatory environment. He added: “There’s too much reaction, too much flip-flopping and too much populism. We need more pragmatism than populism.”