A treat enjoyed by Jonathan Pierce, Abigail Webb and Robert Self of Credit Suisse – last Friday – along with Barclay’s finance director Chris Lucas and (inevitably) the head of investors relations, Stephen Jones.
So what did Pierce and friends take away in their doggy bag?
1. Any decision on the APS (asset protection scheme) is several weeks away. While the bank has submitted a sample £10bn portfolio(s) to the Treasury, HMT has been very tied up with LBG and RBS. Barclays still has “no line of sight” on terms it might offer. However, it doesn’t believe APS has been particularly generous so far. It took the example of LBG’s combined attachment point + fee of 16%. Barclays noted it lost 2.5% in 1992 and it would need 7 consecutive years of this before the insurance became profitable. Barclays didn’t think that it was likely to be forced into the scheme either – indeed Alastair [sic] Darling told the Treasury Select Committee that the ball was in Barclays’ court…
2. They recognise the benefits of a higher capital ratio. Barclays believes it has more than enough capital to run its current mix of businesses, but says there is an increasing correlation between TSR and equity tier 1 ratios. As such, it feels it is right to consider a higher equity tier 1 ratio in the near term, irrespective of whether it goes into the APS or not. Hence the comments around iShares which it also said was increasingly non-core to BGI, something it had always thought would be the case once iShares got too big…
More intriguing, perhaps, was a determination on the Barclays side not to rule out the bank’s participation in a government B shares scheme. Indeed, Varley and co. were apparently keen to highlight that, reading across from the RBS and Lloyds B share terms, it might be appropriate to look at 2x Barclays “undisturbed price” on February 25. That would imply a level of around 200p and would avoid the anti-dilution clause in last October’s mandatory convertible notes, which come up for conversion in June at 153p.
Huh? Undisturbed price? B shares?
The point about the B share schemes handed out to RBS and Lloyds is that they came in the wake of already substantial state-shareholdings. These were dubious plans to bolster the banks’ core equity, while maintaining the pretence that the banks had not been nationalised.
To hand Barclays a B share-type state subsidy now, given its past shunning of government support, would be quite outrageous. It would amount to gaming the bailout – requiring the innocent British public to buy shares in Barclays at twice the market rate.
For what it’s worth, we think Varley’s strategy is less refined. We think the plan is to sell iShares now, muddle on for a few months and then look at returning to shareholders proper in June after the MCNs are out of the way.
But wait! What’s this about a sale of iShares – at a reputed £3bn – being as much as 80 per cent financed by Barclays itself?
Surely it could not be the case that Barclays is planning to fund the sale of its ETF business at an heroic multiple by issuing debt covered by a British government guarantee – itself paid for out of the sale of its ETF business at an heroic multiple…
That would amount to Barclays staying out of government control by issuing cheap debt backed by the government – while making a turn on the financing in the process.
Anyone want to check that with the taxpayers first?
Related links:
Barclays – spinning out of control – FT Alphaville
A deceitful deal for Lloyds Banking Group – FT Alphaville
Possible sale of iShares reveals Barclays’ plight – FT