By Christopher Thompson and Aimee Donnellan
LONDON (Reuters Breakingviews) - Heard the one about the City grandee atop a British bank run by a Wall Street investment banker? Barclays investors certainly have. They will remember that when UK corporate financier Marcus Agius had a double act with hard-charging Chief Executive Bob Diamond it ended in vaudeville, with both eventually resigning over the Libor scandal. Appointing Rothschild & Co’s Nigel Higgins to oversee Chief Executive Jes Staley should end less disastrously.
As a dyed-in-the-wool investment banker and deputy chairman of a seasoned M&A adviser, Higgins may well look kindly on Staley’s drive for Barclays to be competitive in its core non-retail business. That stance will be supported by the fact that Barclays’ retrenchment period is over. In the third quarter the bank’s return on tangible equity was 9.4 percent.
In that light, the appointment looks like a defence of the status quo and, specifically, Staley’s investment bank bolstering as European rivals Deutsche Bank and Credit Suisse struggle. By contrast, outgoing chair John McFarlane, according to author Philip Augar, repeatedly clashed with former CEO Antony Jenkins over cuts to Barclays sizeable trading operations in particular.
Higgins has three things to bear in mind. One is to avoid hubris: when McFarlane joined he predicted a doubling of the share price in three years, when it actually fell by a third. Another is the need to identify a replacement for Staley. Having led a bruising restructuring since joining in late 2015 and fallen foul of whistleblowing rules, it would make sense for the CEO to step down next year or 2020, ideally when Barclays has achieved its 10 percent return on tangible equity target, in line with its cost of capital.
The final issue is Barclays shares’ persistent discount to book, currently 30 percent. If returns falter, the age-old question about the utility of having a large investment bank will resurface – as will the appeal of activist investor Edward Bramson. If other shareholders suddenly become receptive to his pleas to cull the rainmakers and traders, Higgins will need to use his relationship skills to explain why Barclays’ current structure is fit for purpose.
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