Baby Ace: MARKET REPORT: Investors mull over Barclays Bank"s bonus antics ahead of a vote on directors" pay next month and they could stage a rebellion

Friday, March 14, 2014

MARKET REPORT: Investors mull over Barclays Bank"s bonus antics ahead of a vote on directors" pay next month and they could stage a rebellion

By

Roger Baird

Investors are taking a hard look at Barclays Bank in advance of a key vote on directors’ pay next month.

Shareholders are unhappy that the lender, at its full-year results in February, boosted bonus payments by 10 per cent to £2.4billion, while group underlying profit tumbled 32 per cent to £5.2billion.

Some are threatening to vote against the bank’s remuneration report at its annual conference in April.

Uncertain future: Barclays chief executive Antony Jenkins has embarked on a round of investor meetings in a bid to head off an investor rebellion

Its chief executive Antony Jenkins has embarked on a round of investor meetings in a bid to head off an investor rebellion.

Jenkins defended the rise in bonuses, saying that if he did not pay these sums it would result in a ‘death spiral’ of departing bankers.

The standoff is all the more awkward for Jenkins as he took over from former chief Bob Diamond who was forced to resign in the wake of the Libor scandal in 2012.

As a result of the massive hit to Barclays’ reputation, Jenkins promised a bank that would listen more to the needs of its shareholders and the country’s economy.

Failures at Barclays’ investment bank – which accounts for roughly half of the group’s profit – have been identified as the problem.

Last year the division generated a return on equity of 8.2 per cent – below its cost of capital – while its ratio of costs to income increased from 39.6 per cent to 43.2 per cent.

As a result the bank will review operations at the investment bank, which would cut costs and could see thousands of jobs lost. The review is expected to be unveiled before the summer.

Shares in Barclays fell 4.5p to 231.2p.

Jenkins is already committed to slashing £1.7billion of costs across the group by 2015, to bring its annual cost base down to £16.8billion.

Most analysts are agreed that cutting costs is the best way to boost profits at investment banking units over the short term, as they are hit by a tougher regulatory environment and weak trading conditions.

Germany’s Deutsche Bank recently warned of ‘a slow start to the year’, while this month America’s Citigroup and JP Morgan warned of declines in trading income.

Shares in Barclays have fallen 10 per cent since its full-year results last month.

However, analysts at Investec are strong on Barclays, saying it ‘traditionally outperforms the wider market in soft quarters’.

The bank’s ‘consistent profitability’ makes it a buy, the broker adds.

But since the financial crisis, backing banks is an activity for the sophisticated investor.

London’s blue-chip index the FTSE 100 fell 25.89 to 6,527.89 as stocks caught the jitters ahead of a referendum on Sunday on whether Ukraine’s disputed Crimea region should join Russia.

In New York, the Dow Jones Industrial Average fell 34.36 points to 16,074.53 as investors also shied away from making big bets ahead of the Crimea referendum.

Back in London a number of firms exposed to the Ukrainian economy slid. Evraz, the steel-making and mining company with operations in Russia and Ukraine, declined 1.45p to 54.4p.

Building materials and construction firm CRH, which has operations in Ukraine, fell 26p to 1,644p.

And emerging markets focused stocks like Aberdeen Asset Management slipped 11.7p to 365p while fashion house Burberry declined 4p to 1424p.

But Ferrexpo, which mines iron ore in Ukraine, resisted the declines, rising 0.6p to 139p as its 2013 full-year results sparked a wave of analyst upgrades.

Westhouse analyst Nick Hatch said: ‘While we urge potential investors to keep an eye on events in Ukraine, so far Ferrexpo has not suffered any production or shipping disruptions.’

In the retail sector Sainsbury’s recovered some of yesterday’s fall – triggered by poor 2013 results and a massive profits warning from Morrisons.

Shares in J Sainsbury rose 8.7p to 313.6p.

Morrisons, up 2.84p at 208.04p, also made up some of the ground lost as investors took a closer look at its plans to revive sales through the growth of its convenience stores and online operation.

AIM stock Amara Mining climbed 0.75p to 18.75p as it continued to receive favourable broker comments after the preliminary assessment of its Yaoure Gold Project in Cote d’Ivoire.

Analysts at BMO Capital Markets said: ‘Given previous operations on the concession and its proximity to infrastructure, the project offers significant appeal.’

Industrial firm Tanfield Group was one of the top fallers on Aim, slipping 4.75p to 13.5p.

This came after Tanfield said there was a risk that rival Smith Electric Vehicles, in which Tanfield is a major shareholder, might fail to raise the investment required to float separately on the public markets.