Hold the port! No Kummel for that man. Straight to coffees please – and the bill. This news is actionable (in a market sense). Whether it’s an “up” or a “down” story, we are not so sure.
Bob Diamond, indefatigable boss of Barclays’ synthetic finance factory, BarCap, has been out again spreading the good news.
You see there is no problem at Barclays – as, of course, everyone knew following an unscheduled trading update 11 days ago, which itself followed too many reassuring statements to mention.
Quite uncontroversially, one of the “scheduled investor visits” mentioned in this month’s statement seems to have taken the form of a lunch with someone at Credit Suisse. But here’s the resultant review, fresh from the restaurant:
I have just had lunch with Bob Diamond who, post a visit to the IMF in Washington at the weekend is very optimistsic about life. He is of the view that the Fed, ECB, MPC and Japan are now in coordinated easing mode and that this will expedite the normalisation of credit markets. Just to be clear, sub prime is gone, dead, yesterday’s story but leveraged finance is starting to move once again and he described institutional appetite for credit as “enormous”. He also noted that through a series of financial crises dating back to 1982, markets normalised far more quickly than the omni present bears suggested in the eye of the relevant storm. Bob Diamond, in fact, predicts 15% GROWTH for Barcap next year vs our DECLINE of 15%. This delta would be worth 8p on our 71.6p and would put Barclays on an 08 PE of 7.5x and a yield of 6%. Current trade – through September, Barcap is, net of credit losses having a record year. Current inflation data is very benign (CPI 1.8%), CBI survey shows collapsing optimism – UK rates will fall, Barclays has underperformed 22% YTD. Most investors and hedgeys are u/w or short. This alpha source is now unreliable.