Abigail with attitude: Barclays’ downward spiral; Draghi the hero

By:
Abigail Hofman
Published on:

In April, it was also announced that Barclays would scale back its commodity trading operation. I have written about Barclays’ chief executive, Antony Jenkins, in recent columns and how the supposed new broom is lurching from one pitfall to the next.

Within a mere 18 months, Jenkins has dissipated all the goodwill that anointed him by dint of following an unpopular predecessor. Former Barclays chief Bob Diamond was demonized for being the unacceptable face of the self-serving and rapacious banking industry.

But St Antony is proving a sad disappointment as he can’t seem to get anything right. This may be due to one big failing: the fact that he is not an investment banker and yet he is managing a bank that used to make some 50% of its profits from investment banking.

Barclays’ investment bank continues to be run by two of Diamond’s staunchest lieutenants: Eric Bommensath and Tom King. Is it any wonder that shareholders lost out to employees this February when investment bank bonuses were increased despite falling profits and a paltry 8% return on capital? Unless Jenkins can turn things around quickly, his days in the chief executive club might be numbered.

But I do not attribute blame only to Jenkins. Sir David Walker, Barclays’ chairman, must also bow his head in shame. After all, Walker who at the time was chairman-elect, seems to have taken a lead role in finding a successor to Diamond.

Indeed in the press release dated August 30 2012 that announced Jenkins’s appointment, Walker was quoted as saying: “My first priority since my appointment has been to support the Board’s search for a new chief executive. The field of short-listed candidates that I met was very strong, and it was clear that Antony was the outstanding choice. His track record, familiarity with the group and vision for the future are all highly compelling. I look forward to working with him closely to make that vision a reality.”

I don’t see a compelling future for Barclays, and neither does Skip McGee, US CEO, who is abruptly leaving the firm. All I see is a cornucopia of initiatives that don’t mesh together and that certainly haven’t endeared the bank either to shareholders or to the general public.

Let us move, however, from anti-hero to hero. If Antony Jenkins has wavered in his efforts to cleanse the Augean stables, European Central Bank president Mario Draghi has positively astounded me with his stern charisma. Draghi will go down in history as the man who saved the euro. His speech in July 2012 that the ECB would do “whatever it takes to support the euro” startled the naysayers into submission. If you had bought Greek government bonds that day, you would probably have tripled your money and as I write five-year Spanish government bonds yield less than five-year US treasury bonds.

But as the euro hovers near a two-and-a-half-year high against the US dollar, commentators are increasingly asking what Draghi is going to do for an encore. European inflation is very weak, European unemployment is still very high and growth is anaemic. The threat of deflation haunts the continent. Will Draghi introduce quantitative easing or will he once again use the weapon of words?

I was interested to see that Italy’s biggest banks, UniCredit and Intesa Sanpaolo, are teaming up with a US private equity house, KKR, and a restructuring adviser, Alvarez & Marsal, to pool some of their bad loans in a new vehicle. Details are sketchy as the magazine goes to press.

However, both Italian banks recently set up internal bad banks. The implications are clear: some of the shadows over the European banking sector are lifting. Let’s hope that Draghi manages to prevent the twin Japanese spectres of deflation and zombie banks arriving at a European cinema near you.