Lombard: Barclays' Barrett moves up on a high note

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Era ends with strong interim results

Ends of eras tend to produce lots of high-flown language and so it was on Thursdsy at Barclays, as Matt Barrett, chief executive for the past five years, gave his last results presentation before moving up to chairman. The bank had increased its “metabolic rate”, whatever that means. It could now attract the “brightest and the best”. It would “never waver from a preoccupation with financial performance”.

But the self-congratulation at least has a foundation in fact. When Mr Barrett arrived, Barclays was a badly demoralised, drifting institution. As he hands over to John Varley it has a spring in its step and a sense of direction, though quite where this may lead is unclear. It is in the global top 10 (at least for now) by capitalisation, and, unlike some rivals, has got there without any transforming, and potentially risky, acquisitions.

Mr Barrett, in short, has earned his pay, so often the subject of tedious controversy, and Thursday's interims see him moving up on a high note. The numbers were well ahead of market expectations, thanks particularly to lower provisions and an excellent half at Barclays Capital, where dealing profits were up sharply.

The performance of the debt-focused investment banking arm contrasted sharply with some of its rivals. Critics may question the risks attached to its profits - particularly as the interest-rate cycle turns - and its rising costs as it enters new markets, such as US mortgage-backed securities, but Barclays Capital's record over the past five years ought to give it the benefit of some doubt.

With the group's credit cards, international and fund management businesses also growing strongly, the most sluggish part of the business is the core UK banking operation, where an efficiency drive is promised. Across the board the noises from the company on Thursday were remarkably confident, ranging from Mr Varley's promise of “faster execution, faster growth” to a fat 17 per cent dividend increase.

This all presents a sharp contrast to the market's unenthusiastic view of the stock, which sits on a 2005 p/e of 8 and a 5 per cent yield, with the prospect of significant share buy-backs.

As with all the UK clearers, the market is fretting about the strength of the economy. In Barclays' case, there is the question of what else it does to keep up with the global leaders - a big US deal perhaps?

Mr Varley tried to knock that one on the head on Thursday, saying he had no intention of using Barclays' paper to buy US banks on much higher ratings. “We are buyers of our shares, not sellers.” But at those relative prices so too might be a large US rival.

BE-real

It is hard not to feel some sympathy for folks who bought British Energy shares when the nuclear company was privatised. They have lost pretty much all their money. They are naturally angry. And they now have somewhere to give vent to their outrage. The “BE-fair” website promises that “together we can make a difference”. Templates for letters to Adrian Montague, British Energy's chairman, and various politicians follow.

Polygon, the hedge fund that owns 5.6 per cent of British Energy shares, is the driving force behind this activism. It is tapping into shareholder emotions - and it is on emotions that it hopes to win its argument. “Big, nasty bondholders are making loads of money and ripping off the poor shareholders who had no say in what was happening,” sums up the case.

The complaint is based on a rise in energy prices in the 10 months since a restructuring deal was signed, which has increased the potential value of BE. But shareholders only have the chance to make the case because the restructuring is in limbo while the European Commission decides whether to approve the company's bail-out.

Their argument relies heavily on the fact that British Energy bonds are now worth 200 to 250 per cent of their face value. But bondholders, along with the company's bankers, agreed to extend a lifeline to the company last October - when bankruptcy was the only alternative - and negotiated a good deal. Taking on such risks sometimes pays off.

Shareholders are also angry because the company has threatened to delist if equity holders do not approve the plan. But the company is entitled to do this, and, while the regulations on delisting may be changing, the legal position is pretty clear-cut now and was an important factor in getting bondholders' agreement.

The plain truth is that shareholders come bottom of the pile if a company goes bust. The restructuring plan has been signed by all parties and there is not a lot equity holders can do. Polygon expects that outrage over the way the 230,000 small investors have been treated will push the government to force better terms for them. That would undoubtedly lead to lawsuits. And although the government will not want to alienate voters, it also needs bond investors to finance a myriad of future infrastructure projects. Perhaps shareholders should switch their cry to BE-real.

martin.dickson@ft.com

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