Veni, vidi, Varley. He came, he saw, he almost certainly failed to conquer. As Barclays’ chances of winning ABN Amro dwindle, so the question of whether the long battle has weakened the British bank’s position – and that of its patrician chief executive, John Varley – will mount.
The announcement of Barclays’ bid for the Dutch bank in March seemed to stretch Mr Varley’s oft-repeated principle that acquisitions should be the servant rather than the master of strategy. This, it was said, was a rare, once-in-a-generation opportunity to transform the British group.
Rare it may be, but it is tough to argue that it will take another generation before Barclays is confronted with a similar challenge. While Barclays may not emerge weaker from the ABN saga, it cannot emerge the same.
If Royal Bank of Scotland and its allies win ABN, then most of the consolation prizes for Barclays look small. There is the €200m break fee, of course, if ABN recommends the RBS consortium. Senior Barclays executives also talk of the team-building benefits of planning a large takeover against fierce competition, the clear view of overall strategy that emerged from those discussions and the belated realisation that cash talks louder than shares in modern mega-deals.
These lessons are valid (although taking management to a nice country-house hotel for the weekend would have been a cheaper and less distracting way of forging team spirit at a time when credit markets were deteriorating). Much more important was the entry of China Development Bank and Temasek into the Barclays share register. They allowed Barclays to sweeten its offer for ABN, but if the British bank now walks away, CDB, in particular, will provide a useful short-cut to increased emerging markets exposure for Barclays. That’s a deal that, ABN or not, should be applauded.
The alliances also make it less likely that Barclays will feel the need to indulge in reckless dealmaking after ABN and they offer some incidental protection if Barclays itself becomes someone else’s “once in a generation” opportunity. How likely is that? Perhaps less likely now than it was in March, as potential predators are arguably weaker relative to Barclays. But it is impossible to erase the ABN episode from the record. Having extended so many concessions to ABN (from the location of the headquarters down to the sacrifice of the eagle logo), potential European partners may want to tempt Mr Varley back to the negotiating table on similar terms. That is a temptation Barclays’ shareholders should urge their unlikely empire-builder to resist.
HBOS’s happy hindsight
Shareholders liked what they heard from Andy Hornby on Tuesday. By dropping targets for net new mortgage lending in 2008, the HBOS chief executive was preaching to the choir. There is little doubt that the HBOS strategy of further reducing reliance on short-term market funding of mortgages and increasing the emphasis on retail saving and corporate lending is attuned to more conservative times.
According to Mr Hornby, HBOS is reaping the benefits of its “cautious view on mortgage and corporate lending” and “deliberate reduction in asset growth” over the past two years. Cast your mind back less than six months, though, and remember just how much heat HBOS got from investors and analysts for misreading the mortgage market, when the heroes at Northern Rock were demolishing the bank’s share of net new lending. Benny Higgins, the HBOS executive director responsible for retail, announced his resignation in August, in effect carrying the can for that underperformance.
Mr Hornby himself made clear on Tuesday that he had not been “100 per cent content with the performance of our mortgage business in the first quarter”. HBOS is now, in the chief executive’s words, “well-placed”. But you can bet that the soon-to-be-scrapped targets were all-important in early 2007 when the conservative model was out of fashion and the HBOS team, frankly, had underestimated the competition.
Autocrats 1, democrats 0
It should go against the grain for a champion of shareholder rights and efficient pan-European capital-raising to reject calls for “one share, one vote” at European companies. But Charlie McCreevy is both a politician and a pragmatist. Armed with a report that showed no evidence of a link between baroque voting structures and corporate performance, and faced (perhaps more importantly) with a lobby of powerful continental European industrialists, it was easy for the internal market commissioner to abandon any attempt to legislate away “control-enhancing mechanisms”.
Investors in Britain should not grieve too much. More EU legislation to tackle an issue that these days, thankfully, affects few UK companies might have had unwelcome side-effects. But shareholders should not give up the fight for greater openness elsewhere in Europe, using existing EU laws to oblige companies to show who controls what and how. If thwarted, shareholders, unlike citizens in a national democracy, still have a choice of where to invest: if they find they cannot vote with their shares, they should vote with their feet.