Sherborne stake raises prospects of a shake-up at Barclays

“Via the activist Sherborne fund, Mr Bramson has waged several campaigns to improve corporate and share price performance, notably at 3i and the Electra Private Equity investment trust, which returned £1.5 billion in cash to investors last year.

“Going further back, Mr Bramson has also had success at Elementis, Spirent and F&C Asset Management.

“It is therefore little surprise to see Barclays’ shares respond enthusiastically to Sherborne’s appearance on the bank’s shareholder register, especially as the shares do look cheap, especially on an asset value basis.

Source: Thomson Reuters Datastream, Digital Look, analysts’ consensus forecasts. Dividend data based on forecasts for 2018, book value data based on historic 2017 figures.

“This suggests investors feel the bank is underperforming relative to its potential so it will be interesting to see how deeply Mr Bramson and his colleagues delve into the classic activist investor playbook and how Barclays responds, especially as the bank already has a lot on its plate, with the whistle-blowing case involving chief executive Jes Staley, the Serious Fraud Office investigation into 2008’s Qatar-backed fundraising and an ongoing fight with the US Department of Justice over allegations of mis-selling mortgage-backed securities.

“It is unlikely that Mr Bramson can wield much influence over the latter two issues but he may feel that there are other operational and strategic changes which could be made to the potential benefit of the bank’s financial performance and therefore ultimately its shareholders.

Activist investor check-list (and how Barclays could be assessed)

“Activist investors’ approaches to companies are geared to improving share price performance and total returns to investors and they generally have one of (or all of) four key thrusts: a change of strategy and corporate structure; a more efficient capital structure; improved operational performance; and better corporate governance.

• “In the case of a strategic overhaul, activists will tend to press for asset disposals or spin-offs to recognise value, the complete break-up of a company or even seek to put it in play so a bidder will emerge for the whole entity. Barclays is already shrinking itself back to health, after the sale of its African arm, but the underperforming investment bank, which comes with hefty capital requirements from a regulatory perspective, could come under the microscope.

• “Classic activist tactics when it comes to capital allocation include pressing for increased dividends, special dividends and share buybacks. Barclays is already targeting an increase in its ordinary dividend from 3.0p to 6.5p in 2018, although its yield is still some way below that of HSBC and Lloyds, while the latter is now also running a buyback programme.

• “Operational alterations sought by activists often include a change of management, the sales and leaseback of assets or the closure or restructuring of units that are performing poorly. This again may mean Barclays’ investment bank comes under scrutiny while the board will be following the US legal case, the SFO investigation and the conclusions of the whistle-blowing inquiry should they do any damage to the leave the reputation of the bank or any particular individuals.

• “Finally, activists will look at corporate governance. They will look toward the balance between executive and non-executive directors and assess whether the mix is right and whether they have the right skill sets. There could also be calls for executive pay to be reined in, should the activist shareholder consider it excessive, and for greater focus on how the interests of managers and investors are to be better aligned. If an activist feels its calls for change are being ignored or not given enough attention then it may seek board representation and get its people onto the board in an executive or non-executive capacity.”