The fate of the U.K.’s last global investment bank is set to be decided on Thursday when shareholders of Barclays PLC (LON:BARC) will vote, among other things, on whether activist investor Edward Bramson should get a seat on the board.Bramson is Barclays’ third-largest shareholder with 5.5%, much of it hedged with options.
He’s been campaigning for Chief Executive Jes Staley to cut back the corporate and investment bank drastically, arguing that it’s not as profitable as the U.K.-focused lending operations.Staley on the other hand is committed to an investment bank that has done better than its European peers in recent quarters, seeing it as a valuable, uncorrelated source of income that can smooth out returns over the long term.
The strong recent performance of Barclays’ investment bank – its fixed-income division kept revenue declines to only 3% in the first quarter, compared with double-digit drops at most rivals -- has probably vindicated Staley enough to keep Bramson off the board for now.However, Bramson has already scored a partial success in putting a lid on pay at the investment bank: the Financial Times reported recently that accruals for bonuses in the first quarter were down by more than 10% in the first quarter, something that can be traced back to Staley taking back control of the unit from its former head Tim Throsby.Barclays has been the worst-performing of the big U.K.-based banks over the last 12 months, falling 19% (although the U.K.-only challenger banks have fallen much more, somewhat weakening the argument that it should stick to its knitting at home). But Barclays' performance has not been noticeably worse than that of UBS (NYSE:ubs) or Credit Suisse (NYSE:cs), and it has fared a lot better than Deutsche Bank(DE:dbkn), whose 35% stock decline has been in large measure caused by a bloated investment bank that costs more than it brings in in revenue.
With Deutsche now expected by many to cut its U.S.-heavy investment bank more dramatically as it seeks its salvation without a merger, Barclays should logically profit from the falling away of a competitor.Unfortunately for Staley. the same logic may also apply to Bank of America (NYSE:bac), which is funding Bramson’s stake with a $1.4 billion loan and which would face less competition in its home market if Barclays can be persuaded to shrink.
Barclays was up 1.1% in quiet trading on Wednesday, while the U.K. ftse 100 was up 0.2%. Most of the rest of Europe was closed due to the May Day holiday.