BarCap chief hits back at Buffett’s derivatives 'time bomb' comments

Robert Diamond, chief executive of Barclays Capital, the investment banking arm of the UK’s Barclays Bank, has hit back at comments made by US investor Warren Buffett, who said on Monday that derivatives were “time bombs”. “[Buffett] should be wary of the business, because he has failed [in it] twice,” said Diamond at a dinner he hosted at London’s Lanesborough Hotel last night.

Diamond and Barclays Capital’s global head of rates, Jerry Del Missier, attributed Buffett’s comments to being a direct reflection of his views about the stand-alone derivatives business Gen Re Financial Products. The so-called ‘Sage of Omaha’ acquired the unit when he bought its parent, insurance company Gen Re Corporation, in 1999. He subsequently failed to sell the derivatives unit, despite strong initial interest from market participants.

Diamond added that derivatives were very valuable risk management tools and entirely manageable within the correct risk framework. Del Missier, who was among a number of senior Barclays Capital executives at the dinner, added: “The [derivatives] market has grown every year. Risk management and derivatives as risk transfer tools have grown from strength to strength.”

Del Missier referred to the spate of comments made by Federal Reserve chairman Alan Greenspan in the past year that have defended the role of unregulated derivatives as a risk transfer mechanism. Greenspan believes the innovation of financial products has made world financial markets safer.

“There are not large pools of risk concentrations,” del Missier contended.

Buffett - whose personal fortune is estimated at more than $30 billion - is the world’s second wealthiest man and second most powerful billionaire, according to a recent study by Forbes.