© Reuters. FILE PHOTO: The Barclays head office building is seen in the Canary Wharf business district in east London February 6, 2013. REUTERS/Neil Hall (BRITAIN – Tags: BUSINESS)/File Photo
By Sinead Cruise, Lawrence White and Stefania Spezzati
LONDON (Reuters) – Barclays (LON:) is betting it can revive its withering stock price by increasing investment in a range of its small businesses, including US credit cards, people familiar with the matter said. But some of its major shareholders would prefer the quicker solution of a takeover.
Managing Director CS Venkatakrishnan is considering plans to allocate more capital to the bank’s wealth management, US credit cards and global payments business to boost returns, according to people familiar with his thinking and reported here for the first time, after writing to the Boston Consulting Group (BCG) to review its strategy earlier this year.
A team of BCG consultants have temporarily taken up residence at the bank’s headquarters in London’s Canary Wharf financial center to help management think through an optimal investment plan, a source familiar with the BCG review said.
The lender is also pursuing an internal review, the source added.
Another source at Barclays investment bank, speaking anonymously because she is not authorized to speak to the media, said the drop in staff attrition in its technology and back-office had begun to worry cost-conscious managers.
The BCG review could lead to layoffs, the source familiar with the review said, although no decision has been made.
“As you would expect, we frequently work with various external consultants,” a Barclays spokesperson said.
A BCG spokesperson declined to comment.
However, some of Barclays’ top investors told Reuters they would have doubts about a plan to prioritize investments over capital distributions.
They question the logic of pumping more capital into divisions that are small relative to their competitors as the global economy shakes and lender stocks suffer.
Instead, they want to see tighter cost controls, coupled with bigger buybacks and dividends after the bank completed a modest 500 million pound ($646 million) buyback program in April.
“We look forward to seeing the companies we invest in acquire and grow if they can do so in a way that adds value for shareholders,” said Richard Marwood, chief investment officer at Royal London Asset Management, one of Barclays’ top 30 shareholders, according to Refinitiv.
“The hurdle they have to jump through is this: Are acquisitions better uses of capital than retirement stocks? When your stocks are undervalued, it’s a harder benchmark to beat. .”
For Venkat, as the veteran banker is commonly known, the stakes are high.
Two years into his tenure, Barclays’ share price to tangible book value, a measure of market value relative to assets, is 0.54, the lowest among major UK banks and well below rival HSBC’s 0.87, according to Refinitiv data.
Barclays emerged from the 2008 financial crisis with a unique opportunity to strengthen itself on Wall Street, after buying the US operations of Lehman Brothers. But finding the right combination of business to entice new investors without pushing back its more conservative supporters has challenged executives ever since.
After defeating a push by activist investor Edward Bramson to shrink its investment bank in 2021, the 330-year-old lender has stuck to its model of a transatlantic universal bank spanning investment banking and consumer and business lending. companies, gradually increasing group profits.
But a recent shakeup at its investment bank has raised concerns about Barclays’ ability to compete in a global deal slump.
A U.S. securities trading error that triggered a $361 million regulatory fine and hurt recent earnings also remains a drag on shareholder confidence.
It has made investors “nervous about investing versus the simple math of buying back shares at half their book value,” said Richard Buxton, chief investment officer at Jupiter Asset Management, one of the top 25 shareholders. from Barclays, according to Refinitiv.
“I can understand why Barclays wants to invest more in smaller companies if they can prove they are making a profit out of it,” he added.
Some retail investors are hoping the BCG review could offer a fresh take on whether an investment banking spinoff could give shareholders the value they crave.
“You might get a better valuation if you split the investment bank… They’re not properly valued together,” said Alan Beaney, managing director of RC Brown Investment Management, which has owned Barclays shares since 2012.
A Barclays spokesman said the bank’s business continued to perform well and its business mix was “robust”.
Barclays has also engaged another global consultancy to analyze whether some of its payments business should be expanded or combined with other providers, Reuters reported in June.
Meanwhile, Barclays stock has fallen around 3.5% this year, underperforming a 10% gain in a benchmark of European banks and internationally oriented European rivals like BNP Paribas (OTC: ) and HSBC, which were up around 5.5% and 18% respectively.
Barclays underwent several major shake-ups in the decade following the 2008 financial crisis, including a job cut in 2014 and an exit from Africa in 2016.
But while such strategies have helped keep Barclays in the dark throughout the pandemic and the current crisis of inflation-linked economic malaise, management faces a battle to convince investors they can count. on these returns.
Barclays’ target is to achieve a return on tangible equity, a key measure of profitability, of more than 10%. While its UK retail and corporate banking arm achieved 18% in 2022, the other two divisions that house payments and investment banking narrowly scraped the 10% target.
“We estimate that the bank should be able to generate around £19 billion of profit over the period 2023-2025, and we believe that more of this profit should be returned to shareholders to better cope with share price weakness, as opposed to another strategy review,” Jefferies analysts said in a note.
($1 = 0.7736 pounds)