BarCap's Co-President Is the Latest Victim of the Subprime Mortgage Slump & Credit Tight Rope

Implications: Grant Kvalheim, BarCap's Co-President becomes the latest victim resulting from write downs related to subprime mortgage investments in the U.S. and leveraged loans. Kvalheim was responsible for helping to expand BarCap's business in the U.S., however, investments in CDOs, SIVs and SIV-lites which were heavily invested in subprime mortgages led to BarCaps $2.6 billion in write downs on Grant Kvalheim's watch and a job shuffle that inevitably led to Kvalheim's exit. BarCap was also one of the biggest providers of leveraged loans to private equity firms and has carved out leading positions in debt markets, however, many of the big deals brokered in 2007 are now stuck in a backlog. Kvalheim was left with fewer duties when the majority of his responsibilities was shuffled to Jerry del Missier, BarCap's other Co-President and many saw this job shuffle as a sign that Kvalheim's time was running out. Jerry del Missier has been appointed President of BarCap with the departure of Kvalheim.

Analysis: Grant Kvalheim of BarCap is the latest executive to depart amidst losses and write downs in the U.S. subprime mortgage market and subsequent credit tight rope. Kvalheim was responsible for debt underwriting, overseeing credit products and leveraged finance to private equity firms.

1.  Kvalheim and now President of BarCap, Jerry del Missier, were being groomed as possible successors to Bob Diamond, CEO of BarCap, however, the Co-Presidency of Kvalheim and Missier just didn't work and Jerry del Missier may be heir apparent of the CEO slot should Bob Diamond depart from BarCap in the future

2.  BarCap investors and the market was pleasantly surprised by the size of the banks write downs, which may be  pale in comparison to its U.S. counterparts, however, investors are still concerned there could be more write downs in 2008

Takeaway:  Despite BarCap's write downs, BarCap made record profits through October 2007 and full year results are due out in February 2008, when investors can examine BarCaps full year results to determine if Bob Diamond has stabilized the business further and whether the worse of the write downs are behind him. Maybe Bob Diamond does deserve the $22 million bonus he's slated to receive.