Alex Potter at Collins Stewart seems to think so. He issued a sell recommendation on Barclays on Monday, advising hedge-types to short the stock and go long RBS.
The catalyst:
Whilst we take the decision not to proceed as a positive, having considered a deal does highlight mgmt’s apparent unwillingness to delever the balance sheet.
Bob Diamond’s weekend talks about participating in the dismemberment Lehman alongside Bank of America suggests the bank does not feel it should be reducing its overall leverage – and that’s an issue Potter would like to see addressed.
By year-end, we estimate RBS at a 6% core equity Tier 1 ratio against 5.7% at Barclays. Further, Barclays has a (marginally) weaker equity-assets ratio at 145bp vs. 148bp at RBS. More importantly is the recent direction of this last ratio in 1H08 Barclays grew balance sheet assets by £138bn and yet RWAs fell £1.1bn. This is a pattern we find concerning. RBS, conversely, grew assets 6% and RWAs 4.4% in the same time period.
The point about Barclays is that its executives still seem to think the old pre-Crunch world will be back soon.
So Barclays’ “funding gap” – loans, less deposits, less securitisations – is 13 per cent of its overall loan book. That compares with 7.7 per cent at RBS, which has had its own gap partially filled by the deposit-rich purchase of ABN Amro.
Oh, and the capital markets business at Barclays (Bob’s bit) speaks for 69 per cent of total assets, against 44 per cent at RBS.
