Morning:
6°c
John Varley seems to have his fair share of Catholic guilt.
While most banking bosses stuggled to say the “s” word, the chief executive of Barclays — a devout Roman Catholic — has spent the last year saying sorry.
The first apology to the public came before Christmas. Barclays' top man was sorry again in February, promising to shake-up the bank's bonus system. Hell, earlier this month he even offered a personal apology to two customers wronged by the bank.
Chairman Marcus Agius has also taken his turn. In April, he expressed remorse to shareholders for the dramatic collapse in the bank's shares which saw them plunge to a 22-year low.
But, thanks to a mixture of extreme good luck and solid management, Barclays has a lot less to apologise for than most of its rivals.
The bank has avoided the Government's ultra-costly Asset Protection Scheme. Its reputation — if not enhanced — is almost intact after the financial crisis. It has also used the banking turmoil to go on a shopping spree: claiming the star prize of Lehman Brothers' US investment banking business. Barclays' shares are now worth more than six times what they were in January.
A large part of its success is down to one man: Royal Bank of Scotland's former boss Sir Fred Goodwin. Two years ago, just before the global banking sector went into meltdown, Barclays gave up the fight for ABN Amro. Rival RBS ended up massively over-paying for the Dutch bank.
During the crisis, Varley has emerged as the acceptable face of banking, a sincere man who has only ever worked for Barclays. His hobbies are walking and fishing. Some might suggest that he is the perfect man to put the boring back into banking.
So what does the future look like for Barclays?
The Middle Eastern Adventure
Barclays' deal supremo Roger Jenkins won £7 billion from Middle Eastern families to avoid thrusting the begging bowl at UK taxpayers. The fundraising inevitably provoked anger from private shareholders unable to participate, but Agius warned that without the cash, the bank risked collapsing into a “death spiral”. Given the problems of their bailed-out peers, the decision of Barclays' top brass appears vindicated.
Jenkins has now moved on and the Gulf backers have started selling down their investments, booking mega profits. In June, the Abu Dhabi royal family raked in £1.5 billion selling convertible notes in Barclays and two weeks ago, the Qataris disposed of a chunk of their warrants in the bank.
Qatar isn't heading full speed for the exit. It remains the bank's biggest shareholder, with a 7.2% stake and Qatari chief executive Ahmad Al-Sayed said the move did not affect “their current intention to remain a long-term strategic shareholder”. But it is a signal that — despite all the talk of “strategic relationships” — the Qataris will bow out whenever they want: it was only ever a straightforward trade.
Bargain-hunting
One of Barclays' traders described the bank's buying part of Lehman Brothers as like “winning the lottery”. Shelling out for the rump of the bust Wall Street giant has proved a triumph for Barclays president Bob Diamond, who was well-rewarded for his successful conquest. Profits at Barclays Capital, the bank's investment banking arm, doubled in the first half to more than £1 billion thanks in large part to Lehmans.
This week, Barclays snapped up Standard Life Bank for £226 million. Ian Gordon, banking analyst at Exane BNP Paribas, said the acquisition was “small but excellent”: Barclays gained a quality £8.8 billion mortgage book and added 287,000 — mostly wealthy — savings customers to its books.
The shopping spree is expected to continue. There are other attractive opportunities out there: Varley will keep sniffing around. With European competition watchdogs baying for the blood of its rival Lloyds, Barclays should not be ruled out as a potential buyer of part of their mortgage book.
Future growth
Varley set out his plans for the bank at the end of last month: to increase Barclays' reach overseas while shrinking its balance sheet to appease regulators.
More than half the bank's income was generated outside the UK in the first half of the year. Varley said the bank is keen to increase this, concentrating on its African businesses including South African arm Absa and growing its retail and commercial banking arms in Western Europe.
The star of the show has undoubtedly been BarCap, which the bank estimates will account for one-third of its profits for the next few years. Analysts at FBR Capital Markets believe this is too conservative and that it will generate more than half the bank's profits until 2011.
Diamond's high-profile move from London to New York earlier this year was seen as a clear indication of intent: BarCap is now a major player on Wall Street.
However, while all eyes may have been on BarCap, BNP Paribas's Gordon reckons this has overshadowed how well the bank's Global Retail & Commercial Banking arm is doing, compared with its peers. Impairments might be rising, but Gordon says the division has put in “an exceptionally strong performance”, which he expects to continue.
Perhaps Varley should now consider himself forgiven.
