February 21, 2019 / 10:48 AM / 3 months ago

Breakingviews - Barclays has new ammunition for Bramson fight

The Barclays headquarters building is seen in the Canary Wharf business district of London, Britain February 6, 2013. REUTERS/Neil Hall

LONDON (Reuters Breakingviews) - In the Catholic catechism, a “just war” restores moral order rather than merely exacting revenge. Corporate crusader Edward Bramson has reason for bloodlust given the losses he has sustained since he disclosed a 5 percent stake in Barclays nearly a year ago. But his battle to capture a board seat and cut the investment bank down to size is on shakier ground after a broadly robust fourth quarter.

Barclays’ traders rode to Chief Executive Jes Staley’s rescue when he needed them. The bank said on Thursday that fixed income revenue declined by a mere 6 percent in the final three months of 2018, far less than European peers or Wall Street’s average drop of nearly one-fifth. Even so, the division reported an implied loss for the quarter – excluding litigation and fines, the return on tangible equity was minus 0.9 percent.

That backs Bramson’s view that the investment bank is hogging resources – it accounted for 55 percent of group risk-weighted assets and 42 percent of group revenue in the fourth quarter – while delivering at best mediocre returns. True, the division improved underlying annual returns: ROTE rose from a dire 2.2 percent in 2017 to a middling 7.1 percent. But that compares with a UK retail lending business which bested that by nearly 10 percentage points.

Staley insists investment banking is core to Barclays’ transatlantic corporate lending franchise. But investors don’t ascribe it much value. Barclays’ great UK rival, the retail focused lender Lloyds Banking Group, boasts a market capitalisation that is more than one-and-a-half times bigger than Staley’s bank despite having a much smaller balance sheet.

That gives Bramson, who has put himself forward for a board seat at the lender’s annual meeting, plenty to aim at. Cost slippage may be another point of contention: a target of achieving expenses of less than 60 percent of revenue, originally earmarked for this year, has been changed to “over time”.

Even so, Staley can still just about hit a 9 percent ROTE target this year, according to a Breakingviews calculation which assumes flat revenue, one-off costs dropping to 580 million pounds, operating costs of 13.7 billion pounds and a 24 percent tax rate. That was enough to send Barclays shares, trading at a hefty 35 percent discount to tangible book, up 5 percent on Friday. Given Bramson’s desire for vengeance, Staley’s victory is only provisional.

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