New lease for casino banking
Along with Antony Jenkins, the ‘go to’ slogan has gone up in a puff of smoke. John McFarlane has a different set of priorities that includes slashing Barclays’ heavy costs and preserving Britain’s only world-class investment bank which Jenkins appeared set on demolishing.
There were good reasons for being suspicious of an investment bank that has brought Barclays so much regulatory flak from libor to foreign-exchange rigging and from tax avoidance to dark pools. Then there is the small matter of dodgy fundraisings in the Middle East and the use of Cayman Island vehicles to hide toxic debt.
But beneath the layers of appalling behaviour, allowed to fester in the John Varley and Bob Diamond era, there is a good income-generating enterprise. The client list in the US, largely inherited from lehman Brothers, is to die for. generations of British bankers, including Sg Warburg, Schroder and RBS-natWest, sought to build an American investment banking operation and failed. Barclays actually has one.
The problem for McFarlane and whoever he selects as the next chief executive of Barclays is how to square the circle? Barclays needs an investment bank which adheres to the scrupulous ethical standards of the post-crisis era, is valued by clients for its advisory, fundraising and trading skills but avoids distorting bonuses which encourage poor behaviour.
For the moment it is the retail bank, once run by Jenkins, which is in the ducking chair.
It has been required to set aside a further £600 million of provisions for payment protection insurance and a further £250 million for compensation payments relating to packaged premium accounts.
As the owner of one of these accounts, despite never having used the washing machine cover or sought cheap theatre tickets, I have some sympathy for the idea that they were wrongly sold. Many offered services such as travel insurance (which customers already have) and are an open door for the claims management industry.
Back to the numbers for the moment. Despite apparent neglect by Jenkins, the investment bank managed a stonking 36pc rise in profits to £1.4bn. And overall the bank, even after provisions, produced a 25pc rise in pre-tax profits to £3.1bn.
That is all fairly impressive but imagine how much better it would be if McFarlane were able to slash costs to 55pc of revenue.
He may find that a big ask given the high costs of risk management and compliance in the new tough regulatory climate.
My recollection is that the last stop-gap Barclays executive chairman, former mandarin Sir Peter Middleton, set Barclays on a better course before finally hooking the colourful Matt Barrett as a successor. McFarlane is off to a flying start and his sensible decision to hold rather than ratchet the dividend, so as to build capital, shows a degree of courage.
Better health
AnoTHER firm that has been beset by the slings and arrows of the regulators is Britain’s pharmaceutical champion glaxoSmithKline.
It is the company which promises so much when it comes to pipeline drugs and vaccines but fails to deliver to the bottom line.
In gSK’s case the market has put to one side its addiction to quarterly earnings reports and instead is focusing on future prospects.
The big hole in earnings at present is the loss of patent power from Advair, its blockbuster lung drug.
Sir Andrew Witty is betting his survival, under the stewardship of new chairman Sir Philip Hampton, on a pipeline of R&D that is nurturing more than 40 compounds and vaccines into Phase II and Phase III and ever nearer the marketplace. Witty has steered clear of the giant mergers sweeping through healthcare and instead has counted on a £20 billion asset swap with rival novartis to deliver.
In the meantime its HIV drugs including Tivicay are doing reasona- bly well. Those of us who have experienced the pain of shingles cannot but be excited, as Witty is, that a vaccine is on the way. other classes of drugs in prospect are for asthma, chronic lung disease and anaemia. An update is expected at the november R&D day when all will be revealed. In the meantime shares (which I now hold) are up 3pc. not before time.
Going for it
SKY may have overpaid for the Premiership (£4bn) and lost the rights to the Champions league but it is not short of customers. In the UK and Ireland, subscribers climbed through the 12m mark for the first time and pre-tax profits (on the same basis as in 2014) rose 6pc to £1.196bn.
The broadcaster may be dependent on others such as BT for broadband but its embrace of new technologies such as ‘go’ on mobile devices and tablets has endeared it to a new generation. Moreover, it is seeking to be seen as a creative house with big productions such as the Arctic thriller Fortitude sold into more than 100 territories.
The shares tuned up, valuing the group at £19.4bn. All the harder for Rupert Murdoch’s 21st Century Fox to buy in the minority on the cheap.