The Financial Times Would Not Publish our Barclays Letter

Barclays and Global Investment Banking: Leave or remain?

A week or so ago, the Financial Times wrote a piece on Barclays Bank. It chronicled the arrival on the scene of a well-known activist investor. Well-known in other areas perhaps, but not so much in major global banks. To his credit, it appears his first approach was polite, not bellicose, and we think that is best. But now, rebuffed, he has raised his voice. He wants a seat at the table.

Full disclosure: We own Barclays in KCA Financials Fund, LP. We think investors are missing internal improvements that, with patience, will yield long-run performance. Some want Barclays to exit or pare its low return global investment bank and push toward higher return retail banking. We call them "leavers." We are in the "remain" camp and kindly wrote to the FT to offer the other side of the coin. Crickets, as they say. So, we will self-publish.

Letter to the Editor

Financial Times

London, United Kingdom

Sir/Madam,

Barclays chief Jes Staley has the high ground when he stiff-arms Edward Bramson and an ill-timed effort to force Barclays’ retreat from global investment banking.

Your recent article is clear that Barclays has a generational opportunity to bolster its investment banking presence and reassert itself globally in service to clients. Investment banking “leavers” like Mr. Bramson ignore the great unwinding and “retrenchment among most of the continent’s global investment banks.” (FT, 21/01/19)

However, Mr. Staley has the heavy obligation to restore Barclays to its front foot on pillars of superior client-centered advice as well as reliable budgeting and risk management. As always, these are challenges of leadership and staffing glued to patience and accountability. If new-Barclays intends merely a warmed over us-first (bankers and bank) version of legacy-Barclays, then it is not worth the embȇtements.

Certainly, the theory behind allocating capital to high-return segments and away from lower-return activities is appealing at face value. But what if the high returns are near peaks and the low returns are near troughs? Activists seem to want to run toward increasingly competitive products where profit margins will shrink after intrusions from fintech and challenger banks. Strategically, Barclays should finally forge a unique balance that sustains its valuable global presence.

Activists owe management and the board an opportunity to avoid the own-goal that would result from unilaterally disarming just when internal abilities and external opportunities are moving toward alignment. At this important moment, nay-sayers are long on well-worn hypotheticals and well-short on details for a gutting retrenchment. That is unlikely to change.

Barclays shows all the typical signs of a financial institution that is turning around. Meanwhile activists show their tunnel vision. Progress is always uneven, but well-rewarded in the fullness of time. Least helpful to strengthening the institution’s profit outlook would be yet another hurried, inelegant, and fanciful restructuring.

The best course with the global investment bank is to choose “remain” and advance.

Most Sincerely,

KCA/Princeton Advisors, LLC

Important Disclaimer: Nothing in this blog represents advice or an investment recommendation and it should not be relied upon as such. We share our personal views only, and all parties should consult their advisers and consultants before taking any action. We offer no forecast, financial or otherwise. Investment markets carry risk including loss of capital. This blog is not to be used for investment decisions of any kind.