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Bramson appeals to Barclays’ shareholders in battle against risky, ‘black box’ bank

8 January 2019

Activist Sherborne investor Edward Bramson steps up campaign against Barclays with plans to ask bank’s shareholders to elect him to its board and push for cut-back of its investment bank.

Activist investor Edward Bramson is stepping up his campaign against Barclays with plans to appeal directly to the bank’s shareholders to get himself elected to its board.

Bramson, whose Sherborne Investors holds a 5.51% stake in Barclays, making it the second biggest shareholder, has been firmly told by the bank that his representation on the board would not be ‘needed’.

In a letter to shareholders of Sherborne Investors C (SIGC), the £500 million Guernsey-based investment company that owns most of the Barclays position, Bramson says he will now either table a resolution at the bank’s annual general meeting (AGM) in May or, if necessary, call a separate general meeting.

‘After considering the situation carefully we do not have confidence that continued engagement with the company, strictly as an outsider, will produce any more measurable results in the future than it has to date,’ said Bramson in the letter first published on Bloomberg.

Bramson will decide on whether to challenge the bank at its AGM after a meeting with Barclays’ chief executive Jes Staley on 12 March.

He described a recent meeting with Barclays’ chairman John McFarlane, senior independent director Mike Ashley and some of its executive directors, as ‘pleasant and polite’, although his letter details the profound disagreement he has with the bank’s strategy around its investment banking business.

Sherborne Investors has spent £900 million on 440 million Barclays shares and holds another 500 million through derivatives. Bramson said the latter were designed to benefit from most of the rises in the bank’s share price but to protect it from any falls, which looks sensible given the shares have fallen 21% in the past year.

Bramson also said Sherborne would be willing to use its ‘substantial’ cash balance to increase its stake in the bank should it take steps to de-risk the business by scaling back its operations in investment banking.

In his letter, Bramson explains the concerns he has with Barclays’ corporate and investment bank (CIB) and the bank’s capital structure. He believes the CIB is fundamentally weak and uncompetitive, deprives Barclays’ more profitable consumer businesses of capital to grow and that the apparent recent improvement in CIB results has been due to one-off factors.

‘The CIB has been described to us as a “black box with too much leverage” and this deters many long-term investors from acquiring shares even at an exceptionally large discount to tangible book value,’ he told investors.

On capital structure, Bramson claimed that following the restructuring of British banks after the financial crisis Barclays PLC was no longer a true bank but a financial holding company owning interests in ring-fenced subsidiary banks. He said it had been forced to borrow £47 billion to meet tougher capital requirements for CIB which was a high level of leverage that increased the risks to the bank's shareholders.

‘As a result, Moody’s has lowered Barclays’ PLC’s credit rating to Baa3, which is only one step above “junk” and is the lowest of any UK or US banking peer,’ Bramson said.

Despite his previous successful campaigns against F&C Asset Management and Electra Private Equity (ELTA), Bramson has faced scepticism about whether he has bitten off more than he can chew with a fight against the £26 billion high street bank.

John Cronin, financials analyst at Goodbody stockbrokers in Dublin, said whilst a debate on Barclays’ strategy was welcome, challenging the board just two years after it had restated its support of CIB was unhelpful.

‘Boards shouldn’t be second-guessing strategies every time someone expresses an alternative view and the facts haven’t changed as far as we can see,’ Cronin said.

Whether Bramson can win the support of Barclays’ shareholders remains to be seen but the indications that his own investors may continue to back him.

Sherborne investors – which include fund managers Invesco, Columbia Threadneedle, Aviva and Fidelity – have had to pay for their loyalty though. SIGC shares have fallen by more than a third in the past year as Barclays – its main investment – has fallen in value and investors have awaited developments on Bramson's surprise decision to tackle Barclays.

Nevertheless, the rating of the stock has recently improved. From a low of 7% discount below net asset value the shares now trade at an 11% premium to their reduced NAV.

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