Management Changes Make Barclays PLC Investible Again

How managment changes will play out for investors in Barclays PLC (LON:BARC)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I used to be a fan of Barclays (LSE: BARC ) (NYSE: BCS.US). The bank has several valuable franchises which should prove to be nuggets of gold, once economic growth feeds through into a healthier banking sector and ‘blame the bankers’ wears thin as an all-purpose political rallying call and perma-excuse. Bob Diamond snapped up a bargain in the form of Lehman Brother’s investment bank; the UK commercial bank is a one-way bet on Britain’s economic fortunes; Barclaycard has a premium competitive position and, to top it all, Barclays’ African business is a frontier market growth play par excellence.

I lost faith in March when CEO Antony Jenkins announced that he had run out of patience with the investment bank. I thought investors would eventually lose patience with him, but there would be much re-strategising and treading water in the meantime.

Mr Jenkins seemed a safe — and saintly — pair of hands when the bank was mired in multiple scandals. However, lacking the gall to either bring the American investment bankers to heel or spin off the investment bank wholesale, he resorted to salami-slicing it in the most value-destructive fashion imaginable.

I was premature in my analysis: incoming chairman John McFarlane lost no time ousting Mr Jenkins. So how will the latest management changes play out for investors?

Mack the Knife

Mr McFarlane installing himself as executive chairman is welcome news, certainly if he repeats the fantastic performance he pulled off in similar circumstances at insurer Aviva. Expect a forensic business-unit-by-business-unit strategic analysis, followed by ruthless disposal of ill-fitting units and a slash and burn campaign on costs.

True, Mr Jenkins had not one but two bites at the strategic review cherry and Project Transform was eminently sensible, but paraphrasing Barclays’ own announcements, he ‘lacked the skillset’ to do it fast (or effectively) enough.

It may not be much fun to work for a man whose nickname is ‘Mack the Knife’, but Mr McFarlane appears to have the ability to push strategic decisions through the treacle of middle management whose main raison d’etre in large organisations such as Barclays and Aviva is to preserve their own jobs and fiefdoms. Looking at the way Mr Jenkins was ousted — with deputy chairman Sir Mike Rake presented as having done the dirty deed — I suspect ‘MacHiavelli’ might actually be a better nickname for the new chairman.

Heavy lifting

So, as at Aviva, Mr McFarlane is likely to do the heavy lifting of re-positioning, and then install a competent CEO whose emphasis will be on implementation. That puts current finance director Tushar Morzaria in a good place to step up. With an investment banking background, he might have been the man to face up to the bigwigs of New York, but that didn’t work while he was in the number two slot.

Whoever Mr MacFarlane eventually chooses, it’s likely to be a strong leader who executes rather than debates. One of the most energy-sapping things in large companies is when senior management are constantly questioning and re-visiting strategy, which seems to have been the case under Mr Jenkins.

Indeed if a report in the Financial Times is to be believed, it was an argument over the future of the investment bank between Mr Jenkins and investment bank head Tom King that was the immediate catalyst for Mr Jenkins’ departure, with Mr McFarlane and Sir Mike siding with Mr King.

Sans the saint, Barclays’ investment bank might be viewed as more than just a PR headache. It generates an appallingly low return on capital but it needs fixing, not death by a thousand cuts.

Exit Sir Mike

The bungling of Sir Mike’s hasty departure is illuminating. It’s no surprise that a forceful executive chairman and a forceful deputy chairman (who missed out twice on the top job himself) decided they wouldn’t make comfortable boardroom neighbours. But after the news broke Barclays was forced to stress that Sir Mike would remain until a new CEO is installed. It seems managers at the Prudential Regulatory Authority were uncomfortable with Mr McFarlane ruling the roost with no restraining influences — they have read their Machiavelli, too.

Meanwhile the bank’s shares remain cheap, trading at a 10% discount to tangible net worth. Successful turnarounds need two things: a good underlying business, and good management. If Barclays’ new leadership can get the franchise working again, that share price discount should go to a premium.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Tony Reading has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »