Profile: Bob Diamond: Heavy lies the crown

In just 15 months since arriving at BZW, the Irish-American Bob Diamond has remade the Barclays offshoot in his own image. Equities and mergers and acquisitions operations, where Diamond has no expertise whatsoever, are to go. That leaves Barclays Capital Group - a sort of BZW Lite - dominated by money markets and bond trading where Diamond has nearly 20 years of experience on Wall Street.

Gone too is Bill Harrison, Diamond's boss and ex-head of BZW who was hired by Barclays chief executive Martin Taylor at the same time. His position was no longer tenable. Rather than follow Harrison's advice to expand its equities business, Taylor shocked the City by deciding to sell not only that business, but mergers and acquisitions as well, the very area where Harrison had made his name.

That leaves Diamond top of the heap, head of the new-look Barclays Capital Group and still with some pounds 500m in revenue. Its profitability is not revealed. In the first half of this year the old BZW made an operating profit of pounds 124m, a big recovery on the pounds 42m in the second half of 1996 but still a poor 12 per cent return on capital employed.

Diamond explains the decision to sell the stockbroking business as essentially a case of double or quits. "We needed to invest more in equities, we needed to carry on investing in capital markets and technology but we questioned whether we could do it all at once."

Others put it more succinctly. "Bob is a consummate politician and I suppose he sold the best story to Martin Taylor," says star bond trader Shira Corn-wall left BZW to work at UBS.

So is this perhaps simply a case of Diamond having the sharper elbows? Not according to Tony Smith, another prominent BZW refugee who used to run the firm's consistently profitable sterling bond business. "I had three or four bosses in two years and Bob struck me as the best," said Smith. "He is a good manager of people and he knows his business."

Even Diamond's critics concede that BZW's equities business has lost its way recently, with analysts leaving in droves. The move to order-driven trading could cut share trading profits even more. Trying to sell at the top of the market is not such a bad idea, either.

But others still in the firm are less charitable about Diamond and his personally recruited cadre of top managers - many Yanks like him - seeing them as classic Wall Streeters, long on hype but short on performance.

Diamond, a young-looking 46-year-old, does affect the Clark Kentish look that goes down well in New York. Owlish, his school swot glasses are offset by a corpore sano honed by frequent visits to the gym, none to the Savoy Grill. He does also, sometimes, mangle the language, talking of "integration points between lending and debt products and between them and the bank".

Yet he is an engaging, open fellow, quick to laugh and seemingly bereft of the pomposity affected by some Wall Streeters lucky enough to be on a rumoured pounds 5m pay package spread over two years.

Diamond's thesis is simple to describe. Barclays' big corporate clients do not issue equities every day. But major companies together with governments and agencies like the World Bank are always in the market to raise money through conventional borrowing or by issuing bonds. They are interested in hedging currencies and interest rate risks by buying derivatives.

"Our people will be able to deliver all these financial products and provide assurances that we will trade them and provide liquidity in the secondary market," says Diamond. He does not disagree with the notion that the pattern being followed at Barclays is one cut out by Bank of America, Citicorp and Chase. All things to all men - except equities.

Taylor has to hope the strategy is right. His sudden decision to change course over BZW has left him with a credibility gap into which he will fall and perish should the brave new world sketched out by the Irish-American turn out to be blarney.

When he arrived, says Diamond, "BZW's capital markets operation was a second-tier business inside a first-tier commercial bank". It was too concentrated on the UK with unprofitable businesses in the US and Europe and no significant presence in Tokyo.

"We had to upgrade the quality of our people and the quality of our business and build a fixed income and derivatives business from scratch in Japan. Our competitors said we would screw up our international expansion and in the process damage our UK franchise.

"In fact we have done better in gilts in the last six months than in the whole history of BZW," he says. "In capital markets the plan was to double last year's bottom line results and we have done 50 per cent better than that. We are way ahead of plan."

Diamond sees no reason why he cannot export the in-house talent in selling sterling bonds and translate it into selling deutschmark bonds and the like across Europe. "It would be good for us if the UK didn't enter the single currency because then we could continue to dominate the sterling bond business and move into euro issues as well," he says, grinning.

Diamond is a man who changes employers more than he changes jobs. This is his third opportunity to create an international fixed income business. First time round he did it at Morgan Stanley when he came to London to develop a European and Japanese bond business when these markets were deregulating and opening up to foreign competition.

Then in 1992 Credit Suisse First Boston approached him. "I was 39 and offered a seat on the board and the opportunity to develop their Asia business." Subsequently he ran the firm's entire fixed income and foreign exchange business from New York. But early in 1996, after a huge internal row over bonuses, a flood of top people left CSFB, Diamond among them.

For the first time he was out of a job. He will not confirm that he left CSFB upset by a mere $8m (pounds 5m) bonus. But he does say: "I didn't need to work again."

Taylor's job offer brought Diamond back to London. "I found Taylor very impressive and I was excited by the terrific opportunities in Europe offered by monetary union," he says.

Diamond's restructuring of his part of the old BZW has been dramatic. Yet critics are not sure what there is to show for all this frenetic activity. "Bob is a very good manager and has introduced clear lines of reporting," says Ms Cornwall. "But what is less clear is how much difference he has made in building up business elsewhere apart from Tokyo. The gilts and sterling bond business was good before he joined."

Diamond responds by waving at his trophies, the so-called tombstones that describe billion-pound bond issues for prestigious clients like the World Bank and Mexican government.

He similarly rejects charges of cronyism lobbed at his cadre of senior appointees. He ticks off the list. Just one has followed him from firm to firm over the years.

Well, two if you include Bob Cooke. Cooke, now helping Diamond to install sophisticated computer systems at the glitzy new Canary Wharf offices, is the man who put Diamond on Wall Street nearly 20 years ago, taking him to Morgan Stanley.

Diamond's modest background was very different from the patrician milieu of his bosses at Morgan Stanley. He took a master's degree at the University of Connecticut and stayed on to teach management. He then took a job at US Surgical Corporation, "one of those high-tech companies where if you survived the day you would be promoted", where his boss was Cooke. When Cooke got a job installing a computer system to back up Morgan Stanley's move from a tony boutique into a fully fledged sales and trading firm, he took Diamond with him.

He didn't take long to figure out that the way ahead was to become a trader himself. "I loved it, I enjoyed taking risks," he says.

The trader's lifestyle has not left him. Diamond jumps into a taxi each morning to be at Canary Wharf by 6am. "It's fantastic to start the day early so you can check out the news reports and the markets before meetings start."

He made his name, says Smith, by exporting the US techniques of arbitraging in the fixed income securities markets. It was essentially based on profiting from the difference between the yields available on such securities and the cost of financing these positions via the "repo" market, where bills and bonds are borrowed for a fee. "You tie up lots of capital and make huge bets but there is little interest-rate risk," says Smith.

With the UK gilts market now opened up to repo operations, Taylor had better hope this business is as sound as portrayed. And that for his shareholders' money he has bought a quality gem - not an industrial Diamond.