New Barclays CEO Limits Share Price Damage From Probe
The announcement that Antony Jenkins has been appointed as chief executive of troubled U.K. bank Barclays helped stave off bigger losses for the shares on Thursday, following the announcement of a new investigation into the lender.
Analysts welcomed the internal appointment. Jenkins, who comes from the retail and business side of the bank rather than its much-criticized investment banking operations, was viewed as the leading internal candidate. (Read more: New Barclays CEO to Lead ‘Root and Branch Review’)
Barclays share price, which has risen by 6 percent relative to the sector in the past month, as it clawed back some of the losses following revelations its traders manipulated the London interbank offered rate (explain this), was down slightly in early trade Thursday.
On Wednesday evening, the bank announced that it is being investigated by the Serious Fraud Office over payments made to its biggest shareholder, Qatar Holdings, during its 2008 capital raising. The announcement could have dragged down the shares much more if Jenkins’ appointment had not come out, according to analysts. (Read More: Barclays in Fresh Criminal Probe)
“We see the appointment as a positive in terms of removing some of the uncertainty relatively quickly, although the stock has been a strong performer in the last month and the announcement last night of the SFO probe will take some shine off,” analysts at Credit Suisse wrote in a research note. “In the very near term, we do not expect a significant share price reaction.”
Jenkins’ background in retail banking meant that he is relatively untainted from some of the allegations pointed at the bank’s investment banking division. It will also fuel speculation about Barclays refocusing on its retail banking business.
Jenkins will adopt a three-pronged approach to changing the bank over the next 3-5 years, sources at Barclays told CNBC. This will focus on stabilization after recent events, a fundamental root and branch review of the business, and restoring trust in the bank by examining its culture, practice and values.
Mike Trippitt, head of research at Oriel Securities, described Jenkins as a “highly capable executive who will take a fresh look at the allocation of capital across the group.”
“Mr Jenkins' appointment may refuel the Barclays demerger story,” he added.
“We estimate the investment bank would require an additional £11 (billion) of equity to make it Basel 3 compliant today, requiring a rights issue. We therefore see reallocation of capital and gradual deleveraging as the more likely strategy for the investment bank.”
There was some disappointment at the lack of an external candidate for the job. Analysts at Shore Capital said that they would have “preferred” someone from outside the business to succeed Bob Diamond – but added “this is probably the best internal appointment the company could have made.”