Daily Management Review

Investment Banking’s 15% Profit Gain Leverages Barclays In Activist Debate


02/21/2019


Banks make Brexit provisions, while Barclays manages to ride on the tide of profit gains at its investment banking sector.



Source: flickr.com, Photo by Håkan Dahlström (CC BY 2.0)
Source: flickr.com, Photo by Håkan Dahlström (CC BY 2.0)
With the reports of increased “annual income” at Barclay’s investment bank, it replied the “activist shareholder critic”, while sounding a caution note of a “150 million pound” possible loss provision as Brexit stands knocking at the door.
 
There has been a rise 3.5% in Barclays shares on Thursday; whereby the investors ignored the “£3.5 billion” annual profit that missed to match expectations and focussed on the investment bank’s profit increment of 15%.
 
The C.E.O of Barclays, Jes Staley and the “activist investor”, Edward Bramson have locked horns in “a high-profile” situation over the “bank’s strategy”, while the latter heightened the pressure by offering a bid to get a seat at the board. However, the investors think that this move is not likely to success, although the added pressure turned the focus on the investment bank’s performance.
 
As a result of the debate, Staley showed the return of the investment bank on “tangible equity” which increased from two to seven percent in 2018, while maintaining a close level with the group’s target of 9% for 2019. The fixed income of the bank along with “currencies and commodities trading business” regulated the volatile market weathers on the fourth quarter as the bank’s Wall Street rivals experienced a 6% downfall in the revenue while “Goldman Sachs, Citi and JPMorgan” had “double digit falls”.
 
Bramson’s accusations were rebutted by Staley through a letter addressed to the investors which came out in December, he said:
“If you have portfolio managers and traders at Blackrock and Brevan Howard making decisions to direct a trade to our trading desks that then generates revenue for the bank, we are not buying that business”.
 
However, Staley is yet to hear the proposals made by Bramson in a formal way which might happen in next month. Likewise, the chairman of Barclays, John McFarlane’s recommendations go against Bramson being selected as a board member.
 
Nevertheless, due to Brexit provision, the UK sector of Barclays saw a 3% profit decline while it also informed that “flat interest margins” could crumble further in 2019. In the words of the “analyst Edward Firth at broker KBW”:
“As a seller of Barclays, one’s principal concern is always that the results will be so bad that management is forced to revisit a strategy that is hardwired to destroy shareholder value”.
 
However, the “£150 million Brexit provision” made by Barclays was shadowed by “HSBC and Royal Bank of Scotland” recently in similar manners.
 
 
References:
reuters.com







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