Barclays was a traditional, Quaker High Street clearing bank whose roots in Britain and its colonies literally went back centuries. The bank was a traditional and commercial bank with branches across the world Barclaycard was the best known financial brand in the UK. The transformation of Barclays into Britain’s only real bulge bracket investment bank began during London’s Big Bank in 1986. I had the honour to interview Sir Martin Jacomb, chairman of Barclays de Zoete Wedd (BZW) for the Wharton Journal and he literally predicated a transformation in global banking and the Eurobond market we both adored. My own career saw me shuttle between the Wall Street of the Sherman McCoy era and the late Mrs. Thatcher’s City of London, amid the trading rooms where Ivy League and Oxbridge brats moved billions of dollars of money across the digital arteries of world finance.
Sir Martin and Lord Camoys knew that London’s Big Bang was a game changer event even as asset securitization and the derivative markets changed the DNA of banking, with debt trading and capital markets the hottest game in deregulated Londonium. Not since Sir Sigmund Warburg had such visionary, cosmopolitan financiers built a global investment bank in a mere decade.
Barclays exited equities, failed to compete in mergers and acquisitions with the financial gunslingers of Wall Street and incurred huge trading losses in the Asian/Russian meltdowns of 1998. This was the moment Bob Diamond, a Credit Suisse First Boston bond specialist, became chief executive of Barclays Capital and transformed it into Britain’s only real bulge bracket global investment bank. I had the privilege of working with and knowing several Barclays Capital executives in London, Geneva, Dubai and Hong Kong and was awed by their prowess in trading fixed income and currencies across the world. It did not surprise me that Barclays Capital contributed 50% of its parent bank’s profit even before the multiple traumas of 2008 that culminated in the failure of Lehman Brothers.
Bob Diamond’s fall was a Sophoclean tragedy too, when hubris found its nemesis in disgrace and failure. Barclay botched a capital raising mission in the Gulf in 2008 to avert naturalization by HM Treasury and a cap on banker bonuses, the ultimate anathema. Barclays traders were prominent in the post crisis LIBOR and foreign exchange rate manipulation scandal. Bob Diamond was grilled by the House of Commons in Westminster and reputedly fired by Dr. Mervyn King, governor of the Bank of England. Diamond had made untold billions of dollars for Barclays shareholders but failed the basic tenets of risk compliance.
Anthony Jenkins, Diamond’s successor failed to reinvent Barclays as a retail bank and lost the confidence of the board and the City’s fund managers with his lack of a compelling strategic vision. Jenkins was fired in 2015 and replaced by Jes Staley, an American investment banker who has shed Barclays’s African/Middle East and continental Europe footprint to focus on Anglo-American corporate and investment banking.
Barclays still trades at well below tangible book value on the LSE. New York hedge fund Tiger Global has accumulated $1 billion in Barclays shares but has failed to act as a catalyst for a valuation rerating. In an age of Brexit, Barclaycard and its UK retail banking/mortgage business are obviously devalued, eclipsed by the Serious Fraud Office investigation of the 2008 capital raise and the UK mortgage misselling scandal.
Barclays’s modest valuation below 190 pence seems compelling to me, even in a world where the Stoxx 600 Bank Index has lost 16% and is the worst performing sector in Europe. True, the bank suffers from the flattening of the US Treasury, British gilt and German Bund yield curves and the old Lehman equities business in New York has hardly set the bottom line on fire.
Thankfully, the Crown Court has dismissed criminal charges against Barclays for its 2008 capital raise since a conviction could have cost it its banking license. Yet fund managers have still not forgiven the bank for its dividend cut or colossal litigation linked losses after the LIBOR scandal. Barclays paid $2 billion in March 2018 to a Department of Justice probe into the sale of toxic mortgage backed securities to investors. However, all these grim realities are amply reflected in the huge regulatory/litigation risk discount in the shares. The non-core excess baggage is gone. The Basel Tier One capital ratio has been boosted by the restructuring. When will Barclays rerate? Not now.
