I have been a medium-term supporter of Barclays (BARC) shares, noting a couple of months ago that I thought the stock - with all the necessary caveats about the banking space - was cheap at around x0.6 tangible book and that the route to a higher share price may be if it 'pays a bit of respect to the activist on its shareholder books who is talking an interesting game about value creation'. It is the activist angle - and not another Barclays story (a judge discharging the jury in the trial of four former executives over the 2008 controversial global financial crisis Qatari fundraising) - that I turn back to…
I see that 5% and change shareholder Edward Bramson (via his Sherborne Investors vehicle) has stirred the pot again in his attempt to get on the board and try to shake the company up. And unsurprisingly the key is to reduce the size of the corporate investment bank (CIB): 'a judicious rebalancing of the CIB strategy, especially in its markets trading activities, could reduce the need for new external capital and results in a sustainable, competitive, global business.' Now we know that investment banking is a tough old business - cyclical, overpaid staff and downright competitive with American and emerging market peers taking more and more share. But Bramson goes one step further in his critique – he thinks that the company will potentially need to raise money to keep a full offering in the space and/or suffer a credit ratings downgrade unless it follows his plan and focuses on just its strengths.
Actually I am not convinced by this per se. I think better that the company either goes big...or does not bother at all because if you have a corporate list of clients, then you just do not offer straightforward banking facilities but also a bunch of other stuff too in the corporate finance and deal space. As it happens, recent numbers from the company have actually been quite good on the investment banking unit front - as well as the broader banking front - and this makes it geared to any upward bump in sentiment towards pan-European financial shares.
The more I think about Barclays, this is the play here. It is a low sentiment today to a mid-range sentiment tomorrow sort of play, which at this sort of rating can easily be a 20%+ bounce. In the era of internet retail banks and the like, you need your corporate clients. So I think the activist focus on costs and related is good...but a radical recasting of strategy is not ideal (unless whole units were going to be sold off to other players at attractive multiples). My advice to Edward Bramson (and other Barclays investors) is just to be patient... I guess half the problem is that his 'in' price is just over 200p a share. Oops. Maybe that is the reason for the frustrated and ultimately a bit bizarre letter.
Filed under: Barclays, UK Oil & Gas, Lyin’ Steve, Quiz plc, Telit, Central Asia Metals, WH Smith, Chris Bailey
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