Abigail Hofman: Barclays – Misguided or misjudged?
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Abigail Hofman: Barclays – Misguided or misjudged?

In December 2008, I wrote a piece about Barclays, criticizing the expensive £7 billion capital-raising from Middle East investors and the decision to purchase Lehman’s US broker-dealer last September when the outlook for investment banking was at its most opaque. The article elicited howls of outrage from Barclays’ supporters. One indignant reader snorted: “I am encouraged by your criticism of Barclays’ management.”

December 2008 piece about Barclays

Barclays timeline  

September 2008:

Barclays agrees to purchase Lehman's US broker-dealer 

October 2008:
£7 billion capital-raising from Middle East investors

March 2009:
Share prices reach low of 61.40
(vs. current range of 357.55 - 364.00)

June 2009:
Sale of BGI to BlackRock agreed

September 2009:

Negative press surrounding Protium Finance deal;
Bob Diamond featured in Esquire magazine

Half year:
Group pre-tax profit around £3 billion

number two global bookrunner debt issuance league table

Today, Barclays appears to be a winner from the global banking crisis. The share price has risen 600% since the March nadir and capital ratios have been bolstered by the sale of the asset management division to BlackRock. As fixed-income markets roared back, the combined strength of Lehman and Barclays Capital shone. The firm is ranked number two in the global bookrunner debt issuance league table, year-to-date. Group pre-tax profit for the half year ended June 30 was about £3 billion even after impairment charges of £4.5 billion. Barclays Capital contributed £1 billion of those pre-tax profits, double what it made the previous year. Barclays Capital was the only division to improve its profits substantially year on year.

I have always maintained that Bob Diamond, Barclays’ president, is a visionary. It took nerves of steel and strong self-belief to battle to buy Lehman Brothers as the firm was in its death throes. The decision to purchase Lehman’s US broker-dealer operations after the bankruptcy was maybe easier. But don’t forget that the world was in pandemonium that week and no one else saw the opportunity. I also think the pairing of solid, solemn John Varley (Barclays’ chief executive) and the charismatic risk-taker Diamond works: Varley is sensible enough to allow Diamond to sparkle.

However in September, Barclays suffered negative press coverage because of the Protium transaction and the share price ascent stalled. Protium mitigates Barclays’ mark-to-market and monoline exposure on some $12 billion of toxic assets. The transaction reminded people that Barclays still has problem assets on its balance sheet. I have always maintained that press coverage follows the business. So I do not blame Barclays Capital‘s media team for this negative coverage.

However, I am bemused by the decision to give a lengthy interview to Esquire magazine about the nuances of the Lehman acquisition. Is Esquire’s target audience likely to purchase Barclays’ shares? A Barclays source said: “We look to do things differently from other firms and this introduces our brand to a wider audience.” The article, entitled: ‘The deal of the century’, is positive about the acquisition: “Barclays won at every turn... Bob Diamond got everything he wanted because he knew what he wanted. He named his price and he got it,” author Tom Junod writes. An intriguing aspect of the piece is the previously undocumented confrontation between Barclays and JPMorgan, Lehman’s clearing bank. I wouldn’t call it a favourable portrayal of JPMorgan, often heralded as another big winner of the credit crunch. The firm is described as “like a raging, squatting behemoth, seizing and freezing assets left and right”.

By coincidence, when I was in a cafe in New York in early September, I bumped into the charming and erudite Eric Bommensath, Barclays Capital’s head of fixed income and global markets trading. “Do you live in New York now?” Eric enquired. “Otherwise, how do you know the best place on the Upper East Side for Italian coffee?” A mole whispers that Eric might be moving back to London after a period in the Big Apple. I applaud this. For a while, I have thought it odd that most of Barclays Capital’s senior management is based in the US – although Rich Ricci, Barclays Capital’s chief operating officer, is based in London. Some European employees of the investment bank complain they feel like second-class citizens incarcerated in the London headquarters. I look forward to following the Barclays’ story and in particular to seeing the third-quarter results in November. 

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