Jes Staley, the chief executive of Barclays, could be forgiven if tonight he reaches for a more expensive wine than usual for a Friday evening.
A major thorn in his – and the bank’s – side has just been removed.
Edward Bramson, the British-born but US-based activist investor, today called time on his three-year campaign to get Barclays to shrink its corporate and investment banking business and reinvest the capital saved in other areas.
Sherborne Investors, his investment vehicle, said it had offloaded its entire 6.01% shareholding in the bank.
The news will come as a huge boost to Mr Staley. Sherborne had been a huge distraction to him as he sought to navigate the bank through the recession sparked by COVID-19.
The Sherborne fund that had held the stake in Barclays included some of the City’s best-known investors, including Schroders, Aviva, Fidelity International, Jupiter, Janus Henderson, Invesco and Colombia Threadneedle, among its shareholders. Some of those are also shareholders in Barclays itself.
Mr Bramson, 70, materialised on the Barclays shareholder register, in March 2018, with a formidable reputation for getting what he wants.
Tall, thin, pale and unsmiling – some say cadaverous – this intimidating figure had already successfully agitated for change at the speciality chemicals company Elementis, the networks testing specialist Spirent, the promotional products firm 4imprint, the private equity firm Electra and the asset management firm F&C.
There was a sense, in some parts of the City, that Mr Bramson was pushing at an open door.
The corporate and investment banking division at Barclays, the biggest of any UK bank, had long been a cause of friction between the lender and its regulators.
Lord King, the former Bank of England governor, had long made clear his disdain for the division and his successor, Mark Carney, was also thought to be unhappy at how Barclays approached the task of ring-fencing it from its other operations.
Moreover, in the eyes of some, he had a good case. The returns at the bank’s investment banking arm were, at the time, palpably inferior to those being generated in other parts of Barclays, such as its consumer division and Barclaycard, its cards business.
Mr Bramson quickly began to flex his muscles. He quickly argued that, as the bank’s third largest shareholder after the investment management giant BlackRock and Qatar’s sovereign wealth fund, he had a right to demand a say in the appointment of the next Barclays chairman.
He was roundly ignored. When the bank appointed Nigel Higgins, a veteran banker from NM Rothschild, to replace John McFarlane, in November 2018, it was widely seen as a vote of support for Mr Staley’s strategy and a snub to Mr Bramson.
The activist followed this in April 2019 by seeking a place on the Barclays board and appealing over its head to other investors.
In a shareholder circular, pointing out the bank’s poor share price performance, he told them: “We believe that the market’s evaluation of Barclays’ shares reflects the growing risks that the Corporate and Investment Bank poses to Barclays’ overall financial position and that the market does not share the board’s optimism that the hidden merits of its strategy will eventually become apparent.”
Mr Staley was unimpressed. The Wall Street Journal reported that he told colleagues around that time: “He wants us to retreat into a foxhole? He should go back to Connecticut.”
Barclays saw off the attempt and Mr Bramson’s resolutions were voted down. Fewer than 13% of shareholders backed him.
But Mr Bramson was not finished and, in February 2020, he escalated hostilities by making it personal – demanding Mr Staley be fired after it emerged that he was being investigated by both the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority over whether he had properly explained to the Barclays board his relationship with the paedophile financier Jeffrey Epstein.
The investigation, which came on the back of a previous brush with regulators over an attempt by Mr Staley to unmask a whistle-blower, prompted another letter to investors from the activist investor.
He wrote: “We believe that it would be in everyone’s interest to draw a line under this destabilising situation, which has become a circus.”
By now, though, the tide was starting to turn in Mr Staley’s favour. In February 2020, unveiling the bank’s full year results for 2019, he could point to a marked improvement in returns delivered by the corporate and investment banking division.
That April, as the world went into lockdown, he could point out the division’s sales and trading arm had enjoyed a record quarter amid the market volatility that accompanied the spread of the pandemic.
This continued throughout 2020 as it became clear Barclays was benefiting from having a strong corporate and investment banking division to balance out impairments and losses in other operations hit by COVID.
That strong performance continued into this year. Last month, following another solid quarter, Mr Staley could point out that the corporate and investment banking division had achieved a return on capital of 17.9% during the first three months of 2021 – only slightly down on the record performance achieved a year earlier. Mr Bramson’s main criticism of Barclays had been well and truly refuted.
To walk away without achieving what he set out to will be a setback to Mr Bramson. He is not used to failure. Nor will he and his backers be pleased, having bought shares in Barclays at around 200p and sold his stake at an average price of 186p, at the loss incurred.
He made clear today that he had already alighted on a new investment that he thought would generate better returns and where Sherborne feels its proposals for a turnaround will be better received.
Yet Sherborne’s failure in this instance also confirms what has long been a truism in corporate life – it appears to be far harder to activist investors to agitate for change at banks than it is with other businesses.
The feared US investor Knight Vinke failed to obtain the strategic change it sought after acquiring a stake in HSBC in 2007 and launching a noisy campaign. More recently, the Zurich-based hedge fund manager Rudolf Bohli failed to get anywhere when, four years ago, he began agitating for a break-up of Switzerland’s second-biggest lender Credit Suisse.
Nor did Cerberus, the feared US private equity firm, enjoy a happy experience after agitating for changes at the big two German lenders, Deutsche Bank and Commerzbank. It declared a stake in Deutsche in 2017 which halved in value by the time, in 2019, the advisory relationship it had established with the bank came to an end. Matt Zames, the architect of the investment, stepped down as Cerberus president in March this year. Nor was its experience with Commerzbank much more fruitful.
As for Barclays, its shares rose by almost 3% at one point on Friday, reflecting relief that a big distraction for management – and potentially an overhang on the shares – is out of the way.
As Ian Gordon, banking analyst at the investment bank and broker Investec, put it in a note to clients: “Given that Barclays’ management had de facto already won the argument with Sherborne regarding the future business mix of the group, we always regarded a Sherborne exit as a likely headwind for the shares.
“Today’s announcement means this event is now in the past; Sherborne has already sold its entire holding, seemingly removing this as a technical impediment to share price progression…Barclays is now our top pick among the FTSE100 banks.”
Nearly every chief executive of Barclays during the last couple of decades has found it a frustrating experience.
Martin Taylor left in 1999 after being worn down by boardroom rows while his successor, Michael O’Neill, had to step down on health grounds on his first day in the job. His successor, Matt Barrett, saw a lot of his good work undone by unwelcome publicity over his pay packet, his marriage to a former glamour model and branch closures, as well as a PR gaffe concerning Barclaycard.
He was followed by John Varley, who had to face years under the shadow of a Serious Fraud Office investigation into the bank’s emergency fund-raising at the height of the financial crisis, before being finally cleared of any wrong-doing.
Then came Bob Diamond, shown the door on the orders of Lord King for the bank’s role in alleged Libor-rigging, a fate that befell his successor, Antony Jenkins, who clashed with Mr McFarlane over the size of the corporate and investment banking division.
Mr Staley looks to have a real chance of bucking that unhappy trend.