Leadership battle fuels new episode in bank soap opera

THE DARK days of the financial crisis may be over and performance stabilising, but seismic boardroom shifts have unleashed an unprecedented torrent of leadership change across Britain's banking sector.

Through a mixture of happenstance and design, half of the UK's major high street banks have announced changes to top management in the space of less than three weeks.

On Friday, the 18 members of HSBC's board of directors confirmed widespread reports that they have chosen a new chairman and chief executive to take the helm. But the UK's biggest bank wasn't the only one to experience drama at the top; heavyweight rivals Barclays and Lloyds Banking Group were also involved in the boardroom burly that has broken out in the sector.

Earlier this month, investment banker Bob Diamond was named successor to the retiring John Varley as chief executive of Barclays. That was followed by last week's news that Lloyds will launch a global hunt to replace chief executive Eric Daniels, who will retire within a year.

Events taking place behind the scenes at HSBC have been less in the vein of orderly succession and more a financial soap opera, with chief executive Michael Geoghegan forced to deny that he threatened to resign if passed over for the role of executive chairman. The coveted post at the world's third-largest bank is being vacated by Stephen Green, who is joining the coalition government as trade minister.

HSBC finance director Douglas Flint is instead taking the chairman's role, while Stuart Gulliver, head of the group's investment bank, becomes chief executive. Geoghegan, whose career at HSBC spans 37 years, will retire early next year.

Analysts say the Flint-Gulliver line-up is generally welcomed at HSBC, even though the group appears to have been caught out by an unexpected chain of events sparked by Green's move into government work. Though Geoghegan clearly wanted a seat in the executive chair, the board appeared to feel his style wasn't suited for what is primarily an ambassadorial role.

"Green's departure was expected at some time within in the next year, so that in itself wasn't surprising," says Ian Gordon, banking analyst with Exane BNP Paribas.

"Everything that has followed since then has been far less predictable, but overall, none of this will have a material bearing on the strategic direction of the group, which is the most important concern for investors."

There is a bit more uncertainty lingering over the future strategy of Barclays, even though it appears to have been the group best prepared for leadership change.

Diamond's estimated pay package of some 60 million has drawn the ire of government officials seeking to rein in excessive risk-taking that led to the financial meltdown of 2008. Diamond's rise to the top at Barclays has raised questions as to whether the group might ditch its universal banking model by splitting its investment and retail activities.

This is one of the proposals being examined by the government's Independent Commission on Banking (ICB), which on Friday started its year-long investigation into the sector.

Publishing its 62-page "issues paper", the ICB said it would ask hard questions about the industry's structure. It has put forward six main options for the industry's reform, one of which is the forced break-up of banks that are supposedly "too big to fail".

Gordon at BNP Paribas believes suggestions that Barclays might jump into a split before being pushed have been over-played, though others are less certain. Justin Urquhart Stewart, director and co-founder of Seven Investment Management, says Diamond's appointment could be "the first stage in the evolution of Barclays".

Few, however, are expecting a government-enforced division of large retail and investment banking operations. "The pressure for splitting the banks is beginning to ease now because a lot of people are beginning to understand that what we need is better banks, not necessarily smaller banks," Urquhart Stewart says.

None the less, uncertainty over the impact of the ICB's investigation will not make it any easier for Lloyds as it looks for someone to take over from Daniels.

A plethora of names have already been chucked into the frame to succeed Daniels, though those of Flint and Gulliver will have to be deleted following their promotions at HSBC. It has also been suggested that Varley or Geoghegan could take the top role at Lloyds, though some analysts say privately that such a move would be a step back for either man, whose current employers both have more global reach.

The strongest internal candidate appears to be Helen Weir, head of Lloyds retail. Finance director Tim Tookey and Mark Fisher, head of operations and former lieutenant to the disgraced Sir Fred Goodwin at Royal Bank of Scotland, have also been mentioned.

A number of international candidates have also been touted, such as Terri Dial, the recently departed head of Citigroup's North American consumer business.

However, Nic Clarke, banking analyst with Charles Stanley, says he has not yet seen a potential candidate who stands out from the rest. With much of the older management generation discredited in the immediate wake of the banking sector collapse, the appointment at Lloyds and the broader executive reshuffle could signal the rise of a fresh pack of leaders. "Through the credit crisis, there were a lot of big names that were kicked out and are pretty much no longer available," Clarke says, "so maybe it is time for a new generation of leaders."