Written by Sinead Crews and Lawrence White
LONDON (Reuters) – Barclays CEO CS Venkatakrishnan has announced plans for a streamlined business model and a plan to attract restless shareholders seeking higher, sustainable returns at a fraction of the risk. It is under pressure to announce its plans this month.
The British bank has the lowest valuation among its peers, and its share price has fallen by about 24% in the last year, with top investor Qatar Holding selling off a large stake on December 4.
Banking indexes in the UK and the euro area also underperformed, according to the data.
Eight shareholders interviewed by Reuters, including four of the top 20 companies, said they were downsizing their investment banks, selling stakes in smaller businesses or selling non-core assets entirely. I support putting billions back in our pockets.
Barclays' CEO, known as Venkat, has been listening. Speaking at the World Economic Forum in Davos last month, he acknowledged the significant contribution Barclays' investment bank has made to group profits and pledged to restore balance and transparency to the bank's structure.
But buyers of the businesses the bank is looking to sell appear to be hesitant, given the fluidity of the global economy.
Reuters reported on February 1 that the bank, which is struggling to find backers for its UK payments business, risks complicating Venkat's goals and shareholder expectations for a quick turnaround. be.
Fund managers say Barclays, one of Britain's oldest banking brands, lacks focus and underwhelms risk-adjusted returns.
“The fundamental problem is that the bank is not boring enough for the majority of investors,” said Sazier Ahmed, a portfolio manager at Aegon Asset Management, which manages Barclays shares.
“It's an investment bank with a retail bank attached. Management has been trying to spell out the benefits of diversification, but it's not supporting the bottom line at this point,” he said.
While many banks streamlined their riskiest operations after the 2008-2009 financial crisis, Barclays sought to grow from the embers of Lehman Brothers into a leading transatlantic investment bank.
Post-crisis regulations have made returns from investment banking even tougher, leaving investors wondering whether it's time to scale back those ambitions.
Barclays declined to comment.
The bank has drafted a plan with Boston Consulting Group to assist with its restructuring plan, which is expected to be submitted on February 20th.
High risk and uneven returns
The investment bank has long been central to Barclays' universal banking business model, which also offers consumer and corporate lending.
But six shareholders said the group's weak valuation reflected the investment bank's high costs and unpredictable returns.
Barclays Corporate and Investment Bank reported quarterly profits of between £4 billion and £3.1 billion and quarterly costs of around £2 billion for the nine months to September.
Return on tangible equity (ROTE), a key profitability metric, ranged from 15.2% to 9.2% throughout these quarters.
UBS analyst Jason Napier said in a note on Jan. 11 that the division was consuming 63% of the group's capital reserves and its revenue was below that of its peers.
By contrast, BNP Paribas puts less than a third of its group capital into investment banking, while UBS says it will not allocate 25% of its risk-weighted assets to investment banking.
Investment banking is also an accident-prone industry. In 2022, the bank's litigation and conduct costs soared to £1.6 billion in that year, up from £400 million the previous year, due to missteps in its US securities sales.
“Execution is the key,” RBC analyst Benjamin Thoms said. “This means no accidents occur and the cost of actions and litigation is closer to £100 million instead of £1 billion.”
Barclays' forward price-to-book multiple, a measure of market valuation for assets, is 0.34, compared to Deutsche Bank's 0.34, BNP Paribas' 0.56, HSBC's 0.82 and UBS's 0.95, based on February 1 LSEG data. , 8.
Investors said this reflected doubts about Barclays' business mix and a growing consensus that a leaner, simpler bank could deliver higher returns.
Five of the investors said Barclays had small businesses that could fetch a significant price if sold, with some of these units ranked 3rd or 4th or higher in their respective markets. He pointed out that it is unlikely that
Four shareholders said a divestiture from Barclays' Consumer, Cards and Payments (CCP) division would be welcomed, with one saying the international credit card business would add to the bank's overall valuation. suggested that they were applying a 'complexity discount'.
Reuters earlier reported on a wide-ranging investigation into the bank's global payments activities.
Capital released by asset sales could support more generous dividends and share buyback programs, or be reinvested in fee-generating businesses such as wealth management, the three investors said. Stated.
KBW analyst Ed Firth said, “In my opinion, the only way to revalue stocks is to significantly reduce the size of corporations and investment banks and reposition their businesses on predictable, franchise-based revenue streams.'' It's about focusing.”
Analysts at Jefferies expect Barclays to propose a significant increase in capital reallocation to boost struggling stocks, rising to around £7bn by the end of 2025.
There are signs that short sellers are pulling back ahead of a potential move. Barclays has not been in the top 10 most shorted large-cap banks in EMEA since October, according to data firm Hazeltree.
Investors interviewed by Reuters expect the bank to raise its annual return on investment target of 10% to 11% to 13%. In 2023, US bank JP Morgan achieved 21%.
“I think people are having a hard time believing that higher returns are achievable and sustainable,” said Ben Ritchie, head of developed market equities at Abdon.
“But if companies can get credit for consistent delivery, that's a game-changer,” he said.
(Edited by Jane Merriman)
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