Virtuous veterans hard to find in British banking

By Matt Scuffham

LONDON, Nov 29 (Reuters) - Calling all senior, experiencedBritish bankers with a clean charge sheet and political nous.There might be a chairmanship role awaiting.

With three of Britain's four major banks expected to hirenew chairmen - and they are all likely to be men - within thenext two years, headhunters and industry insiders say there isan acute shortage of suitably qualified candidates.

Perhaps only six to 12 credible figures could fill the postslikely to be on offer at Lloyds, Barclays andRoyal Bank of Scotland, making it tough to lure theright person to positions which are crucial not just to thebanks themselves but the economy as a whole.

Lloyds is on the verge of appointing Norman Blackwell,chairman of its Scottish Widows insurance arm, as its newchairman, a person familiar with the matter said on Friday.

An ex management consultant with banking experience,political contacts and free of scandal, Blackwell fits the bill.

But for the other banks, finding a virtuous industry veteranis likely to prove difficult, particularly in the wake of thefinancial crisis.

"There are probably less than a dozen individuals globallythat have the right experience to do it," John McFarlane, 66,chairman of insurer Aviva, told Reuters. "I do think thata chairman of a bank should ideally have relevant bankingexperience because of the complexity involved."

McFarlane has been linked to the chairmanship of RBS, wherehe was an independent director until 2012. But the former bankersaid he was not interested.

INDUSTRY BACKGROUNDS

The dangers of employing a bank chairman without an industrybackground have been highlighted by problems at the Co-op Bank,a customer-owned lender which nearly collapsed due to propertylosses during the tenure of Paul Flowers.

Flowers' banking experience amounted to four years workingas a cashier after leaving school. The Methodist reverend hassince become embroiled in a drugs scandal, days after anembarrassing grilling in front of lawmakers at which he betrayeda lack of understanding of some of the bank's key financialnumbers.

In the last few years, Britain's financial regulators havesought bank chairmen with industry backgrounds, a trend thatwill be accentuated following criticism of their role inapproving Flowers to be Co-op Bank chair in 2010.

Bank also often lack industry experience among their ranksof non-executive directors (NEDs) who might be able to providebackup to an underpowered chairman.

"The real issue is the lack of high quality NEDs," a seniorregulator said, speaking on condition of anonymity.

Lloyds Chairman Win Bischoff, 72, said in a speech thismonth that banks should ensure up to half of their independentdirectors have industry expertise.

A Reuters analysis of the boards of Britain's biggest bankshas shown only a third of independent directors, excluding thechairmen, have direct banking experience.

SANCTIONS AND QUALIFICATIONS

Banking expertise is not in short supply in Britain, acountry where the financial services industry employs over 1million people and accounts for around 10 percent of economicoutput.

Peter Hahn, a lecturer at London's Cass Business School,said banks and headhunters did not cast the net wide enough whenlooking for independent directors.

"They look at a very shallow pool," said Hahn, a formerbanker. "The requirement seems to be largely based on yourexperience of boards rather than (industry) expertise. Until wecan get over that and decide that your expertise is what mattersmore, then we are going to have this problem."

An additional headache is trying to find someone untouchedby the welter of scandal that has led to some of the biggestnames in British banking being forced into taxpayer-fundedbailouts and left the sector nursing huge bills for misconduct.

Since the crisis, scrutiny of senior bankers has increasedwith Britain preparing to introduce annual competency tests andjail terms of up to seven years for reckless behavior.

Such restrictions could make it even tougher to sourcechairmen and other independent directors.

"The more qualifications you require and the sanctions thatnow hang over people, the harder it is going to be," said oneformer bank board member, who declined to be named.

Barclays appointed City grandee David Walker as chairmanlast year, when the bank was shaken by mass resignationsfollowing its indictment by regulators over rate manipulation.

Walker, 73, is not expected to remain chairman beyond 2015.Barclays said it had succession plans in place for all of itssenior executives.

"You're looking at a very narrow pool of people who havereal banking experience and seniority and are untainted," onetop London headhunter told Reuters.

POLITICAL KNOWLEDGE

Recruiters have got around the whiff of scandal when hiringchief executives by looking overseas. RBS appointed NewZealander Ross McEwan and Lloyds hired Portuguese banker AntonioHorta Osorio as CEOs.

But candidates for chairmen roles are more likely to beadvanced in years and may be less likely to uproot.

For Britain's state-backed banks Lloyds and RBS, a knowledgeof British politics and regulation are also seen as key, makingoverseas hires less likely.

Blackwell, who is set to replace Bischoff early next year,headed up the then prime minister John Major's policy unit from1995 to 1997 and is a Tory life peer

Philip Hampton, who has been chairman at RBS for nearly fiveyears, had previously said five to seven years was the typicaltenure. Industry sources say he is expected to relinquish hisrole in the next 18 months, although one source with knowledgeof the matter emphasised his departure was not imminent. RBSdeclined to comment.

Elsewhere, customer-owned lender Nationwide has said it islooking for a successor for incumbent Geoffrey Howe, who willretire in 2015.

Possible candidates for the RBS or Barclays positions giventheir banking backgrounds include John Stewart, 64 chairman ofinsurer Legal & General, Richard Broadbent, 60,chairman of retailer Tesco and Donald Brydon, 68,chairman of the Royal Mail. None of them could bereached for comment.

John Nelson, 66, chairman of the Lloyd's of London insurance market, and Gerry Grimstone, 64, chairman of insurerStandard Life, both have banking backgrounds and are alsoseen as contenders. They declined to comment.

Gus O'Donnell, 61, who was head of Britain's civil service,is the one non-banker cited as a realistic candidate by industrysources. He couldn't be reached for comment.

Martin Taylor, 61, a former CEO of Barclays in the 1990s,had been linked to the Lloyds chairmanship, but said he was nottalking to anyone about a new job at the moment.

In an email to Reuters, Taylor said: "I am happy as anexternal member of the Bank of England's Financial PolicyCommittee, which both keeps me busy and pretty much rules outdalliance with the financial sector."