Diamond comes up trumps at Barclays

Roger Davis, head of UK banking at Barclays, was groomed for stardom by Simon Cowell in a spoof version of The X Factor shown to some of its 41,000 retail banking staff at a series of roadshows around Britain during the autumn.

But was his departure from the bank, announced last week, due to his rejection by chief executive John Varley in an alternative version called The B Factor? Or did Davis simply decide that he was never going to be the star of that particular show so he should seek out another talent contest?

The message from Barclays was in perfect harmony. Davis said he was looking 'for the next challenge'. Varley said that he would miss the 'energy enthusiasm and leadership skills' of the departing director. Both insisted there was no sub-plot: Davis' departure was entirely voluntary.

But the rumour-mongers were quick to come up with alternative explanations. The first is that Varley simply wanted his own team in place at the retail bank. Davis's switch from chief executive of business banking to head of the UK retail bank coincided with Varley's own elevation to the post of chief executive, so it was ultimately the decision of Matt Barrett, who stepped up to the chairman's role at the same time.

The second suggestion is that Davis was fed up with the empire-building of Bob Diamond, the much-admired head of the investment banking business Barclays Capital. Diamond has already dispensed with Andrew Skirton, the former co-head of asset management business Barclays Global Investors, and a recent reorganisation of business banking meant that he took some of the larger clients away from Davis's retail bank.

In truth, there are likely to be elements of all three behind the decision. Davis makes no secret of the fact that he wants to be a chief executive and will have calculated there is little chance of that happening at Barclays. He and Varley are both just 49 and, even if the latter decides to hand over early, the fact that Diamond is in charge of the fastest-growing business would give him a much better chance of securing the top job.

Of course, Davis could have just hung around waiting for the headhunters' calls, but announcing his resignation makes it much clearer that he is on the market - and he has agreed a three-month handover, with a further six month consultancy, giving him plenty of time to look for 'the next challenge'.

The fact that he is being replaced by three people probably says more about the scale of the task involved in revitalising the retail bank than about Davis's energy and skills. He has certainly delivered some of what he promised when he took on the job two years ago.

The ratio of costs to income at the UK retail bank - a key measure of banking efficiency - had improved more within 18 months than he had promised to deliver in three years. And the trading statement issued at the end of November said that revenue in his division was finally starting to improve.

But there is still a lot to do - as Varley himself made clear at an investor presentation in the autumn when he said: 'UK retail banking is too important to have flat income and it's imperative for me and my team that we address this.'

While efficiency may have improved, it is still way behind rivals such as HBOS, which last week wowed the City with a trading update showing decent revenue growth, continued cost control and the resources to do yet more share buy-backs to underpin the share price. Its cost-income ratio is just 40 per cent, compared with 63 per cent at Barclays retail bank.

Davis has been addressing it in the kind of team-building, troop-rallying way that fits with his background as a captain in the Royal Tank Regiment. He spent at least two days a week visiting branches, instituted a major programme of refurbishment aimed at making them more customer-focused - including pinning the managers' pictures and mobile phone numbers on the wall for those who want to complain about poor service - and has done more than 100 roadshows for staff, exhorting them to create the UK's best bank.

But competition in retail banking is intense and, with mortgage and credit card borrowing slowing, it is unlikely to slacken. The evidence suggests that only those banks that can offer something different - like HBOS' mortgage price pledge and high-paying current account, or HSBC's loan sale - which can secure growth.

Barclays is clearly thinking about what it can do differently. In October, it recruited Deanna Oppenheimer from US bank Washington Mutual as chief operating officer of the retail bank and she now becomes chief executive of UK retail banking. At her last job, she introduced such innovations as children's play areas, bookstores and shops selling 'Action Teller' dolls and is likely to be considering similar innovations here.

Antony Jenkins, the new head of the Barclaycard business, may be British but joins from US bank Citigroup where he was also responsible for the credit card business. His predecessor at Barclaycard, Gary Hoffman, becomes chairman of UK Banking.

Some analysts speculate - though Barclays denies it - that Davis was unhappy about Oppenheimer's appointment. And it would certainly be interesting to know whether Davis's decision to go precipitated the latest management changes or vice-versa.

The bank also vehemently denies there was any territorial dispute between Davis and Diamond. A spokeswoman points out that Davis was actually recruited by Diamond and the two are good friends. But there is no doubt that Diamond is seen as the star executive at Barclays: though Davis's business is much larger - it still accounts for well over half of the group's profits - BarCap, as Diamond's division is known, is the real growth engine.

Last year, Davis's UK banking division grew profits by 9 per cent - all down to the growth in business banking - while BarCap and BGI, Diamond's two businesses, grew by 25 and 82 per cent respectively. Davis was never going to be able to emulate that growth, no matter how many gimmicks Oppenheimer comes up with.

Davis's performance so far should be good enough to at least attract the headhunters - and there is a real shortage of executive talent around. He may have calculated that the easy gains had been made: by leaving now, he will avoid the risk of being blamed if the programme does not deliver more major improvements.