At 41, and already the chief financial officer of one of the ten largest
companies in the UK, Naguib Kheraj is motoring.
Kheraj has been CFO of Barclays since January 2004, having stepped up from
the position of chief executive at Barclays Private Clients, and having headed
up Barclays Private Equity business as well.
He says he wouldn’t mind going back there. ‘I wouldn’t rule it out [going for
a chief executive role], but I think it’s unlikely. It’s more likely I would do
something more akin to what I’ve done in the past, which has been to go back to
advising on transactions or working in private equity. I don’t have any firm
views at the moment.’
Once a banker, always a banker, perhaps. And as a banker, there might be some
who would question why he has become a finance director. It is not, of course,
uncommon for FDs and CFOs to be non-accountants, but surely it helps? He doesn’t
see it as that important. ‘I think what’s important is that you need to be
financially literate and understand accounting.’
When he first took on a finance role, as CFO at Salomon Brothers Europe at
the tender age of 28, he had previously worked in the corporate finance team.
‘I was clearly very financially literate. I knew a lot about funding and how
to perform financial analysis and strategy and planning. I didn’t know much
about controls and regulation and the IT required in financial reporting and I
didn’t know much about managing tax risk, so I had to learn all of those on the
job. Actually, it was a lot more complicated than I ever thought. I hadn’t
thought enough about these things,’ Kheraj admits.
Having worked on the finance side for long enough now to grasp the
intricacies of those fields, there can be few better places to be now than
With banks scoring record profits year on year (so high that their critics
are calling for some kind of windfall tax), there’s a lot of money to be made as
an executive there. Barclays made £4.5bn in pre-tax profits last year, up 20% on
2003, and Kheraj took home £1.5m, plus around £400,000 in share options.
Kheraj might ponder whether he could make more back in private equity, but he
can’t be too concerned.
What he is concerned about is international financial reporting standards,
his discontent mirroring other rumblings in the finance director world over the
usefulness and cost-effectiveness of the new rules.
‘Because of IAS39 and all of the complexity of the rules on derivatives it
has affected banks more than other companies. Even if you have only a small
insurance business, the changes to insurance accounting are also pretty
significant under IFRS. The combination was a very complex element to implement.
I think people underestimated how much work was involved in being able to
comply, how much it would cost and the complications of being able to interpret
financial results that have arisen as a consequence.’
How has it impacted Barclays? ‘We’ve spent £50m on our IFRS convergence plan
over the past couple years and that’s a lot of money. We had a lot of people
spending a lot of time on this, and our results are more difficult to interpret
now than they were,’ Kheraj says.
His comments, coming from such a senior CFO, will give Sir David Tweedie and
other standards-setters something to think about.
He also has some advice for HM Revenue & Customs, which is currently
indicating that it’s about time that boards of big companies came to terms with
tax, and appreciated the risks involved with it.
‘Tax has always been an important issue. If the tax rate is 30%, then 30% of
your bottom line is a big number. You’ve got to spend a lot of time focusing on
it. The more complex your business becomes, the more complex your tax planning
needs to be to ensure you don’t have a much higher tax rate by accident.’
IFRS has posed particular problems in this area too. ‘Tax has generally
followed the accounting profit. A lot of adjustments in the transition to IFRS
have an impact in tax, so this year it got a lot more complex.’
Ultimately, HMRC’s initiatives to highlight tax risks for boards may be
unnecessary, he says. ‘HM Revenue & Customs is keen to make sure tax is on
the boardroom agenda, but it always has been.’
So what does he make of suggestions that banks might be hit with a windfall
‘I don’t think it’s a serious concern. I think there’s a commonality of
interest between the government and the financial services sector in the UK, a
big contributor of both corporation tax and income tax of employees who work in
the industry. I think arbitrary changes to tax or regulation could result in the
UK being a less competitive place to locate important parts of the financial
services industry. The government understands that it is in the country’s
interest to have strong and profitable banks,’ he says.
So what’s going on at Barclays otherwise? Where is the growth coming from,
and where are the risks?
Kheraj is keen to push Barclays’ South African venture – its purchase of a
majority stake in the Amalgmated Bank of South Africa. The move was greeted with
somewhat superficial taunts about Barclays’ record of investing in South Africa
during Apartheid, worries that Kheraj dismisses, focusing on the business
‘South Africa is a growth market. It’s not the only growth market we’re
interested in, but the economy is doing well and is expected to continue doing
so,’ he says.
‘Within that, financial services is growing rapidly. There’s a growing middle
class in South Africa and it’s a well-regulated, well-governed financial system
with reliable financial information and good returns. We were able to buy into
one of the top franchises at a very attractive price. We think we’ll do well in
South Africa – we have a long association and our brand is very well respected
as a result of that.’
There has been a frenzy of worries about bad debts in the UK hitting the
retail bank’s profits, concerns he also plays down.
‘The increase in bad debts that people have written about is very
concentrated in the retail as opposed to the wholesale sector. In Business
banking and Barclays Capital, the credit losses have actually been very low this
year and stayed low for the past few years. Conditions have been very good. The
place where there has been strain is in the credit card business and unsecured
personal lending. In overall terms, it’s not such a big deal for us.’
Retail banking in the UK, he says, makes up only 20% of the profits overall.
With any highly-profitable business, there is always speculation about
potential buyers. In Barclays’ case, rumour has it that Citigroup is waiting to
pounce – but Kheraj believes a bid is unlikely.
‘I think some of the speculation is poorly informed because we have a market
value of £37bn. There are not many companies that could take over a business
that size. I’m not surprised to see the chatter because in an industry where you
may see some consolidation, if you looked at the other big banks we have one of
the most attractive portfolios in the banking industry.
‘We would be among the most desirable partners in the industry. We are
growing well and would be attractive to a lot of people, but we have attractive
prospects on a stand-alone basis.’
Banking Is not what it was
Kheraj, unfortunately, does not take a starring role in Liar’s Poker, Michael
Lewis’s lively account of investment banking at Salomon Brothers in the 1980s.
But he does remember those days, when he was at the investment bank, and
although he says banking is not what it was, there is an element of truth to the
half-outraged, half-nostalgic portrait of an adrenalin-fuelled atmosphere
painted by Lewis: ‘It’s an entertaining book designed for non-bankers. Clearly
there’s journalistic license in it, but I think in general it’s right to say
that business has become more grey and less interesting in the past 20 years. I
don’t think you’d find a big company today where you would have the sort of
characters and behaviours that you read about in Liar’s Poker.
Kheraj was, he admits, one of the ‘corporate financiers who wore jackets and
looked self-important and went to long lunches’.
The kind of behaviour that went on then is no longer, he argues.
‘Twenty years ago there was lots of inappropriate behaviour. It wasn’t
uncommon in city dealing rooms for people to have stripograms come for
birthdays. You never see that today and it was always completely inappropriate.’
But Kheraj does lament some of the other developments that have rendered
business more faceless. He admits not all are a good thing.
One of the most appalling business behaviours in Liar’s Poker, of course,
involved dumping billions of pounds of bonds on the market to make the market
think something had gone wrong, and then buying them back 10 minutes later in
order to make a huge profit on the transaction.
In other words, what Citigroup did not so long ago.
‘I think that was on a different scale, though,’ he says, somewhat defensive
Did anyone actually play Liar’s Poker? ‘By repute they did,’ he says. ‘People
tell me that stuff happened but I don’t think it was common to gamble the kind
of stakes talked about in the book.’