“WILL INVESTORS BE MORE INTERESTED IN THE HEADLINES CONCERNING JES STALEY THAN BARCLAYS’ EARNINGS?”

 

It seems unlikely that what look like encouraging results posted by Barclays Bank this morning, will receive the balanced scrutiny they deserve in comparison to the headlines its CEO, Jes Staley, will attract from the news of the investigation that is taking place over his alleged friendship with the deceased New York financier, Jeffrey Epstein. Sadly, the aroma of Mr Epstein’s behavioural patterns still permeates around, clinging to all and sundry, even if there is ‘no case’, allegation or ‘judgement call’ to answer. Barclays have reiterated that Jes Staley has their full backing. Some might suggest that, during the four and a half years Mr Staley has been in ‘situ’, he is leading a ‘charmed life’ or another analogy that fits well – ‘like a cat with nine lives!’

In the past decade Barclays has had quite serious problems with its senior management except for the recent Chairman, John McFarlane. Marcus Agius and John Varley were embroiled in the banking crisis, in controversially accepting Qatar’s £8 billion capital injection which is still under investigation. John Vardy was amongst the four directors who were accused of making improper and fraudulent payments. Mr. Varley recently had the charges dropped against him. He was succeeded as CEO by Bob Diamond - always a controversial appointment – who in all fairness was at the head of Barclays Capital which delivered between 40% and 60% of the bank’s entire profits for a decade. Most people felt that the bonus distribution to the investment bank traders, which at one time, was in excess of the dividend payable to shareholders, to be wholly unacceptable.

However, there is little doubt that had Barclays Capital not been so incredibly successful the ‘Bald Eagle’ would have been into the Treasury for a bailout. This must never be forgotten and very often commentators suffer from convenient amnesia. Bob Diamond resigned due to pressure from the then Governor of the Bank of England Lord Mervyn King; libor abuse by some traders, being the catalyst. He was succeeded in 2012 by Antony Jenkins, who frankly was wholly unqualified for the job. Cutting costs and cutting investment banking did not sit easily on his shoulders. He resigned in 2015 to be replaced by Jes Staley, formerly an acolyte of Jamie Dimon at JP Morgan Chase. Though very much an extrovert, Jes Staley has courted controversy, involving himself in a whistle-blowing scandal which required him to hand back £1.1 million allocated bonus.

Overall, this was a decent set of numbers that Barclays posted today – a profit before tax of £6.2 billion. A return on equity of 9%, slightly below the 10% guideline but in the circumstances of low interest rates, fears over Brexit and a previous slew of PPI claims, this level of return was acceptable. Tier One capital came in at 13.8% - good. The dividend of 9p per share will be paid. Costs fell by 2% to £13.6 billion. Income increased by 2%. Investment banking saw profits increase by 17% on fixed income though on equities it was 2% lower. The bonus pool has been cut by 10%. There are no plans for a share buyback. Edward Bramson is still needling Barclays over its presence in investment banking, remaining a constant irritant – a bit like a fly that you want to swat. Mr. Staley’s remuneration has increased from £3.3 million last year to £5.9 million this year.

Its share price has increased by only 10% in the past year to 175.31p (down 2.3% on the day). Barclays shares have always provided fantastic trading opportunities – extremely volatile. Apart from HSBC, Barclays is the only UK bank with a proper investment banking presence, and they are currently very grateful for it. It would be very encouraging if this bank could put controversy behind it and be allowed to grow in stature. Many feel that Barclays is the one UK bank that offers investor’s scope above the others as it has more arrows to its bow. Time alone will tell, if investors are right.

David Buik

Core Spreads

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