The new chief executive of Barclays, CS Venkatakrishnan, will know what shareholders want from him: decent profits and fewer run-ins with regulators. Predecessor, Jes Staley, made progress on the former front but failed on the latter: he somehow survived a hefty fine for trying to unmask a whistleblower but was felled by the continuing regulatory probe into his characterisation of his relationship with Jeffrey Epstein.
Wednesday’s full-year report represented a promising inheritance for Venkatakrishnan. Pre-tax profits for 2021 hit a record £8.4bn and demonstrated that, for big banks at least, the pandemic is over. A total of £653m of credit impairments were written back. Meanwhile, return on tangible equity – a better measure of a bank’s financial performance – was 13.4%, the best in years, and every division achieved the desired double digits. Capital ratios were comfortably above target. At 6p, the dividend is almost back to pre-Covid levels and there was a spare £1bn to spray at buying back shares.
On the requirement to avoid excitement, Venkatakrishnan sounds the part. He ducked for cover when invited to comment on Staley’s £22m-worth of frozen share awards and he signalled zero change of strategic direction – hardly surprising since he helped design the original plan.
So plain sailing? Well, no. The stock market clearly still worries that Barclays will find new ways to disappoint, which is not an unreasonable view on past evidence. The deficit in the credibility ledger is a share price that, even after Wednesday’s 3% gain, stands well below book value; 196p plays 292p. Even NatWest, half-owned by the state, has a narrower discount these days.
Put another way, Barclays’ “transatlantic” model of combining plain-vanilla UK retail and business lending with high-thrills Wall Street investment banking is still not universally trusted. Purely domestic banks just look more predictable. Staley, to be fair, made a better case for diversity in earnings and geography than his own predecessor-but-one, Bob Diamond, ever did. But Venkatakrishnan is the chief executive who will have to seal the deal.
Interest rates are rising, which is a helpful backdrop for lenders, and Barclays’ investment bank has been redesigned to make it less of a naked bet on bond-trading volumes. The definition of a par score for Venkatakrishnan would be several years in a row of double-digit returns on equity. Easier said than done, but he has the chance to be the boring boss Barclays has been seeking for two decades.
Aston Martin looks to jump start recovery
Lawrence Stroll’s fan club should have listened harder when he said his intended “transformation” of Aston Martin Lagonda would take four to five years to perform. High hopes drove the shares as high as £21 soon after the rescue of the luxury carmaker in late-2020, but the price is now back roughly where it started at £10.
There were few unexpected horrors within the £76.5m of operating losses for 2021, or £214m at the pre-tax level, but the gap between the two figures points to the major worry. Aston Martin, even in refinanced form, is still leaking substantial sums in interest payments on its borrowings.
Net debt was £892m at the end of December and, worst of all, the company is still suffering the pauper’s interest rates agreed by old management in the dark days when corporate survival was in doubt. The aim is to achieve positive cashflow in 2023, which is probably the earliest that borrowing terms could be negotiated. The £2.5m-a-pop Valkyrie “hypercar” is built for speed; the corporate self-help programme wasn’t.
Near miss: when Gazprom nearly bought Centrica
As we inspect those long lists of Russian companies on the UK stock market and wonder how they all got here, here’s a tale from the archives that helps to explain. Back in 2006, there was a serious debate in Westminster as to whether Gazprom, Russia’s state-controlled energy giant, should be allowed to buy Centrica, owner of British Gas and a company that, as now, owns a significant stake in the UK’s fleet of nuclear power stations.
Gazprom kicked things off in February of that year when one of its senior executives said a bid was being “analysed and investigated”. Centrica’s shares shot up 25% in a day. Even come April, the story had legs. The FT reported that “Tony Blair [prime minister at the time] has ruled out any possibility that UK ministers might actively seek to block a future bid by Russia’s Gazprom for Centrica.” The priority, apparently, was to liberalise European energy markets and face down “economic nationalism”.
In the event, of course, a bid never materialised – for which we can give thanks. The political naivety was extraordinary.
