The activist investor pushing for Barclays to shrink its investment bank has warned there is a “real threat” that the UK lender will have to raise fresh capital unless it scales back its trading operations.
Edward Bramson on Monday urged Barclays shareholders to support his attempt to secure a board seat at the bank and compared the lender’s investment banking arm to ailing Deutsche Bank.
“Continuation on the existing course represents a real threat that more new capital will need to be raised to underpin the activities of the corporate and investment bank (CIB),” Mr Bramson said in a letter to Barclays investors.
“Any new capital invested in the CIB is almost certain to cause an immediate destruction of shareholder value,” he said.
If Barclays did not raise fresh capital, Mr Bramson said, the bank would probably have to sell attractive businesses or reduce its dividend payments.
The letter comes at a time of tumult at Barclays’ investment bank, after the division’s head, Tim Throsby, was ousted last month by chief executive Jes Staley.
Mr Bramson said he would be a “strongly stable influence” at a time of “sudden management realignments and departures” if elected as a director.
The activist has built a stake of roughly 5.5 per cent in Barclays through his vehicle Sherborne Investors, making him the company’s fourth-biggest shareholder. He has urged other investors to vote him on to the bank’s board at its annual meeting on May 2.
His demands that Barclays scale back its trading operations have put him on collision course with Mr Staley, who has pledged to protect Britain’s last remaining global investment bank from further cuts.
However, Mr Bramson has struggled to win over some of Barclays’ largest shareholders, and one top-20 investor said Monday’s letter was “merely an exaggerated exposition of what we already know”.
The investor said Mr Bramson — who bought most of his Barclays stake with the proceeds of a $1.4bn loan from Bank of America — had failed to address his “different economic interests versus other shareholders”.
Some shareholders have complained that Mr Bramson has limited upside or downside on his Barclays stake because he took out a series of put and call options to secure the BofA loan.
The top-20 shareholder also said Mr Bramson had used “a lot of half-baked maths” in the letter criticising Barclays.
One person close to the bank said there was “nothing new” in Mr Bramson’s latest letter and that it was “littered with misunderstandings and errors, which show just how little he gets about banks”.
Monday’s letter argued that the fall in Barclays’ share price, which has tumbled 24 per cent during the past 12 months, could not be explained by “uncontrollable factors such as Brexit”.
“The cause is, we believe, the board’s prolonged pursuit of a strategy that is not grounded in the fundamental realities of the global [investment banking] marketplace,” Mr Bramsom said. “A judicious rebalancing of the CIB strategy, especially in its markets trading activities, could reduce the need for new external capital and result in a sustainable, competitive, global business.”
Mr Bramson argued that Barclays’ investment bank was highly reliant on hedge funds and private equity clients rather than more profitable global corporations.
“It should be a cautionary sign to the board that Barclays and Deutsche Bank have similar strategic weaknesses and have pursued similar product and customer strategies, resulting in revenue yields that are identical,” he wrote.
He warned that the bank, which has a Baa3 rating from Moody’s, could be downgraded to a non-investment grade rating. “The announcement of a potential downgrade at some point in the next market cycle is, we believe, a very likely catalyst for the need to raise new capital on . . . punitive terms,” said Mr Bramson.
However, one large fixed-income investor that owns a big chunk of Barclays’ debt said the bank was “not on the verge of downgrade” and that the Moody’s rating was “ridiculously low”, in part because the rating agency disliked investment banking as a business.
The activist investor also took a swipe at incoming chairman and veteran Rothschild banker Nigel Higgins, describing his experience as “limited to advisory or mergers and acquisitions work in a firm that is family-controlled”.
“Our recommendation to our shareholders to reject Sherborne’s proposal for a board seat has not changed,” said a Barclays spokesperson, adding that the bank would publish a fuller rebuttal of Mr Bramson’s criticisms “in due course”.
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