A Silver Lining for Barclays Shareholders?

Multiple resignations is a substantial blow to the banking firm, but recent moves could eventually lead to more stable results for shareholders

Jim Sinegal 3 July, 2012 | 6:49PM

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Barclays (BARC) CEO Bob Diamond and chief operating officer Jerry del Missier followed chairman Marcus Agius in offering their resignations, becoming the latest casualties of the LIBOR-fixing scandal that resulted in a £290 million fine for the bank. It appears that Agius will stay on temporarily to lead the search for a new CEO.

We think the departure of multiple executives could be a substantial blow to the firm, as it will leave the bank directionless in the middle of a massive turnaround effort. We have long been concerned about Barclays' increasing dependence on investment banking. Diamond, himself an investment banker, seemed set to continue the firm's move in that direction. The firm's questionable behaviour with respect to LIBOR and Diamond's somewhat unapologetic stand on compensation reinforced negative stereotypes and did the bank no favours with regulators or the general public.

However, there could eventually be a silver lining for shareholders. It's quite possible that Barclays' next CEO could come from a retail banking background, a development that could benefit the bank in several ways. First, traditional banking produces less volatile results than investment banking, arguably leaving the company's shareholders less exposed to large losses. Second, we don't see a structural reason why the retail bank could not meet the company's current 13% return on equity goal in a normalised environment. With investment banking revenue and expenses both still under pressure, and capital requirements increasing, the retail banking side of the business may therefore be equally attractive from a value creation standpoint. Finally, a return to simpler business lines would boost the bank's standing in the eyes of regulators, politicians and potential retail customers.

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barclays PLC156.60 GBX0.63

About Author

Jim Sinegal  Jim Sinegal is the associate director of the financial team at Morningstar.

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