Welcome to Barclays, Jes Staley, you have been hired to add the ill-defined quality of dynamism, or so your chairman suggested when he fired your predecessor as chief executive, Antony Jenkins.
It’s not clear what this mission is meant to involve, other than shedding staff and overheads at a faster pace than Jenkins could manage, but here’s one area where Barclays would benefit from less dynamism, not more: relations with regulators.
You need to know that your new employer has a tendency to surround the referee to argue the toss when it doesn’t like a decision. It’s not a good way to behave and, more to the point, the tactic usually doesn’t work.
Jenkins got off on the wrong foot. Back in 2013 he said Barclays might be forced to cut lending to the UK economy if the Bank of England’s Prudential Regulation Authority (PRA) insisted on seeing a rapid improvement in the bank’s leverage ratios. The suggestion-cum-threat caused uproar and, if it was intended to reassure shareholders, it backfired. Within months, Barclays launched a £5.8bn rights issue.
Unfortunately, your new chairman, John McFarlane, has also acquired a reputation for quarrelling over rules he doesn’t like, such as ringfencing, the requirement for banks to erect an internal division between their investment banking and retail divisions by 2019. “There is a serious question as to whether all these statutory and regulatory changes are really necessary,” he told the Sunday Times in May.
Such complaints may have succeeded in watering down a few minor new rules but the ring-fence itself will be a fact of life. It has been approved by parliament and the PRA is clear it will stamp on any restructuring proposal from a bank that seeks to dodge the spirit of the rules. Indeed, the complaints have only succeeded in opening a separate debate about banks’ lobbying tactics – Barclays, note, got a dishonourable mention at the Treasury select committee a fortnight ago.
Circumspection is required, Mr Staley, especially from a bank that was whacked with yet another big fine last week. Ringfencing presents particular headaches for banks like Barclays with big investment operations – but you are paid the big bucks to find solutions, not to irritate regulators.
Dividend cut looks inevitable at BHP Billiton
As with BP after its Deepwater Horizon disaster in 2010, the City has been slow to wake up to the scale of BHP Billiton’s catastrophe in Brazil – the dreadful dam failure at Samarco on 5 November, which killed 13 people and left six still unaccounted for.
Yesterday, BHP confirmed the Brazilian government is suing for $5.2bn for environmental recovery and compensation. Samarco is owned by BHP and Brazilian mining group Vale and, if a half-share of $5.2bn was the eventual bill, investors might be inclined to see value in a share price that has fallen by about 25% since the disaster.
In reality, it’s too soon to make that call. Bills invariably rise after major mining and natural resources incidents and it’s not clear what other claims the Brazilian government, or regional authorities, will submit. As with BP, final resolution could take years.
The only near certainty is that BHP will cut a dividend currently costing $6.5bn a year. The payment was surely unsustainable anyway, given the fall in commodity prices, and thus BHP’s profits, but Samarco ends any pretence. From a purely financial perspective, BHP could probably get away with halving the payment to shareholders. In practice, it should be guided by Vale, which is a core holding for Brazilian pension funds. If its joint-venture partner judges any form of dividend to be too politically inflammatory, BHP should follow its lead.
Aberdeen Asset Management must allow pain to pass
“We believe ... that these markets will deliver significant returns for the patient investor.” You wouldn’t expect Martin Gilbert, chief executive of fund manager Aberdeen Asset Management, to say anything else about emerging markets. But use of the word “patient” is a giveaway: 2016 is not looking promising.
After net outflows of £33.9bn in 2015, it’s not what shareholders wanted to hear. But that’s life – sovereign wealth funds, under budget squeezes from the low oil price, are liquidating assets and emerging markets are deeply out of fashion. For Aberdeen, it’s a case of waiting for the pain to pass.
Certainly, it’s no time to be looking for salvation in the form of a bidder. Gilbert, thankfully, gave a strong defence of the virtues of independence. Let’s hope he means it. The fund management industry is already populated by quite enough big banks.
This article was written by Nils Pratley, for theguardian.com on Monday 30th November 2015 19.29 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010