Barclays CEO says euro-zone foundations still strong
BARCLAYS CEO Robert Diamond said yesterday that the euro zone would survive even as the debt crisis slows economic growth and weakens the currency.
“The underpinnings of the single currency, the underpinnings of the integrated economy across Europe are very, very strong,” Mr Diamond said in Hong Kong. “We’re going to continue to see some event risk as we, in our opinion, march closer, over the next couple of years, toward fiscal and political integration.”
Spain on Saturday became the fourth of the euro zone’s states to ask for a rescue, while Greece’s future in the currency bloc may hinge on elections this weekend. The region’s debt crisis would not force London-based Barclays to scrap its profitability target, Mr Diamond said.
“Our commitment is very, very serious around creating returns across all of Barclays that are comfortably ahead of the cost of equity,” Mr Diamond said. He reiterated the goal of boosting return on equity, a measure of profitability, to 13%. Britain’s second-biggest bank by assets had not set a deadline for achieving the target as the environment, including global interest rates, would have an effect, he said.
Still, the bank was seeing “some positive signs”, with all three of its biggest units posting improvements in the first quarter, he said.
Shares of Barclays have gained 9% this year in London trading, outperforming the FTSE 100 index’s 1,5% decline. Bigger UK rival HSBC Holdings has climbed 10,4%.
“We don’t think the European crisis is like a Lehman Brothers 2008-type meltdown,” Sandy Mehta, CEO for Hong Kong-based Value Investment Principals, said.
Europe “will be able to muddle through”. Some continental banks would need more capital, while UK banks had already bolstered equity.
Mr Diamond is selling assets and focusing on the most profitable operations to help meet his return-onequity target. The lender last month raised about $5,5bn by selling its BlackRock stake before the Basel 3 rules stop it from counting the holding as capital. He also sold consumer and commercial bank operations in Russia in October and a private equity unit in November.
Divesting more assets may be difficult given the global turmoil, Mr Diamond said. “I would say that it’s a difficult environment to sell.”
The bank in April posted firstquarter BRITAIN’s banks are hoarding large amounts of cash and capital due to market pressures rather than regulatory requirements, a top regulator has said.
Hector Sants, who stands down this month as Financial Services Authority (FSA) CEO, said lenders were worried that markets would perceive them as not being safe if they did not hold so much cash.
“What is determining the amount of cash banks hold is the market climate and not the regulator,” he told the BBC yesterday.
Banks have complained that they cannot lend to businesses to the extent that the government would like while also building up profit that beat analysts’ estimates as revenue at its investment banking unit rebounded from the fourth quarter.
Pretax profit excluding losses on the valuation of the debt rose 22% from a year earlier to £2,45bn. Revenue at the investment banking unit, which generates about half of Barclays’ pretax profit, jumped 91% from the fourth quarter as income from trading fixed-income, currencies and commodities surged.
Barclays was hit by an investor protest over pay in April, as 27% of shareholders voted against Mr Diamond’s capital and liquidity buffers.
Britain was the first country to force its banks to build up liquidity cushions ahead of globally agreed rules coming in to force.
Bank of England deputy governor Paul Tucker said on Tuesday that requirements for banks to hold cash cushions may be crimping the effect of the central bank’s quantitative easing asset purchases.
The FSA will be scrapped by early next year and replaced with two new regulatory bodies, one housed at the Bank of England, making it one of the world’s most powerful central banks.
Mr Sants said the issue was not one of too much power. Reuters £12m compensation package. He and finance director Chris Lucas agreed to cut their deferred bonuses for last year until the bank improved profitability.
Mr Diamond said the bank had reviewed its own operations after JPMorgan Chase last month reported $2bn of losses related to derivatives trading in a unit managing risks.
“In every incident like this, you can imagine, that the board audit committee is going to want a report, and of course we have done those reviews,” Mr Diamond said. “We feel very comfortable.…” Bloomberg