Reasons not to trust Barclays with another acquisition

So, from the dream team that brought Barclays through the financial crisis without a bail-out (as John Varley and Bob Diamond might like to be described), come proposals to buy an American retail bank.

Three reasons why Barclays, one of Britain’s biggest banks, should not be trusted with such a deal:

1. Barclays wanted to be Royal Bank of Scotland. It tried to buy ABN Amro, and was only stopped by a combination of RBS’s willingness to pay even more than the insane sum (€64bn) Barclays offered and a campaign by Atticus Capital, the New York hedge fund, to make it see sense. Had Barclays succeeded, it would be Varley, not Sir Fred Goodwin, who was having his windows broken.

2. Barclays almost became a combination of Lloyds TSB and Bank of America. If it hadn’t been for Alistair Darling and the FSA, Barclays would have bought Lehman Brothers the weekend before it went bankrupt, in a sweetheart deal brokered by Hank Paulson, then Treasury secretary, and Tim Geithner, then head of the New York Fed and now Treasury secretary. Had Barclays succeeded, Varley would be joining Eric Daniels of Lloyds (now Lloyds Banking Group, following its disastrous HBOS takeover and state bail-out) and Ken Lewis (ex) of BoA (the not-so-proud owner of Merrill Lynch) in the competition for the title of worst takeover deal ever. [EDIT: Note that a large chunk of the most toxic assets would have been left for Wall Street to pick up; bad assets embedded in the balance sheet would still have been terrible news for Barclays, but perhaps - perhaps - it could still have avoided falling under state control.]

3. Barclays is already too big to fail. Allowing it to grow bigger simply exposes the British taxpayer to further contingent risk, which quite clearly Britain is not capable of taking on.

In addition, the dismal history of British banks in the US gives good reason for caution: most famously HSBC, but RBS of course had big operations there and NatWest Bancorp was never successful.

Rather than letting Barclays buy more, it should – as with other big banks – be forced to shrink, ideally by making it pay its true cost of capital, which would render many operations of all the banks unprofitable.

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Christopher Cook is an FT editorial writer. Before joining the FT in 2008 as a Peter Martin Fellow, he worked for three years for the Conservative party.

Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.

Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.


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