Tuesday 7 September 2010

Diamond will break-up Barclays

The long awaited day when the super-ego that is Bob Diamond takes over Barclays has arrived. Early next year he will take over as CEO. Now, not many people can hold a candle to Bob Diamond as a builder of an investment bank. Plus in the depths of the 2008 crash he took over a big chunk of Lehmans out of administration which was a huge gamble that paid of spectacularly.

In the last year, Barclays has been engaged in a process of trying to integrate the UK Corporate Bank and the Investment bank. The idea being to sell profitable and complex products to the UK corporate base. The other banks look on in bemusement, wondering how you sell hedges and swaps to small companies in Norfolk.

Still, it is a brave try and perhaps was done with a view of Bob Diamond taking over. Mr Diamond would probably rather run an  investment bank alone and sell off Barclays retail and Barclaycard altogether. Even the UK Government would welcome this as it would reduce some risk in the system of a huge Investment bank going under and taking the retail bank with it (note Barclays did very well our of the credit crunch though, so clearly has some very good risk management practices). Shareholders too might like to see a break-up as they eye an improved sum-of-the-parts valuation.

However, the merger of Barcorp and Barcap now presents itself as something of a poison pill, unless it is purely the retail bank that is to be sold off. Long term I just can't see Barcap and Barclays staying together with Diamond in charge. Fun times ahead for shareholders in the next year or so. The market has been fairly neutral in reaction today, but the bank remains a buy under 300p if I ever free up any more cash.


Mark Wadsworth said...

I must say, that was my first thought when I heard it on the radio, and if I were him, that is exactly what I would do.

Demetrius said...

Could Barclays blow a big fuse?

Steven_L said...

My take on it is this: we might as well say 'sterlingholder support'

measured said...

So times are good for the banks. How on earth can a government be surprised that a head of investment banking is chosen to head up the whole? It was only a question of time. Barclays has gotten too big. Bring back. Glass Steagall. Like on fb, it's going to be complicated but Bob wouldn't be where he is if he didn't stay focussed on the big picture.

More pertinent are the intentions to develop living wills to stave off the regulators in my humble opinion. In essence, a bank predetermines how it would first fall on its sword, before being baled out. It does not reduce risk, just meters out the pain but I reckon these implications are what will speed up a demerger.* Equity holders must get shafted first, de rigueur ;-) which might make valuing banks just a tad more demanding. I think I would consider any convertible pref if I was going to add to my portfolio.

*I use to work for BZW, then James Capel. Good times.