View: Despite Staley’s battles, investors have undervalued Barclays

When Nigel Higgins was appointed chairman of Barclays three years ago, some close observers predicted he would quickly look for a successor to Jes Staley, and scale back the chief executive’s expansion of its investment bank. The forecasts could not have proved more wrong.

Not only did Higgins stand by Staley, despite regulators’ mounting concern over the chief executive’s personal judgment, the former Rothschild veteran strongly backed the investment bank strategy in the face of continued scepticism from investors.

Now that Staley has stepped down, he has been replaced by long-time lieutenant and head of trading CS Venkatakrishnan. This certainly looks like continuity Staley.

Clearly questions remain over how the bank and the regulators have handled Staley’s repeated lapses of judgment in dealings with friends. In February last year, Barclays said a review by external lawyers had concluded that Staley had been “sufficiently transparent” with the company over his relationship with disgraced financier Jeffrey Epstein.

READ Barclays boss Jes Staley quits over Epstein probe after tumultuous six-year reign

The regulators appear to have taken almost two years to decide that they disagree, making it impossible for Staley to remain in post. Without excusing the foot-dragging on both sides, it has arguably worked out quite well for Barclays. Staley has been able to pursue his strategy for the investment bank and the broader group which has been rewarded by solid financial performance over the past few years.

The regulators’ leisurely approach to the Epstein issue has given Barclays time to position Venkat for the top job, promoting him from head of risk to head of global markets a year ago.

In the process, Staley has seen off activist investor Edward Bramson who was pressing for radical cuts to the investment bank. Bramson argued that Staley was not a fit person to run Barclays because of his historic relationship with Epstein, describing the questions surrounding Staley’s leadership as “a destabilising…circus”.

Whether or not the Barclays board was right to stand by Staley over his relationship with Epstein, it has managed to prevent the controversies destabilising the group. For six years under Staley, Barclays has enjoyed success and relative stability following a period of turmoil in which two chief executives were ousted in the space of three years.

Helped by buoyant markets and a boom in deal-making over the past 18 months, the performance of the investment bank has vindicated Staley’s confidence in the universal banking model, combining retail banking with a large capital markets business.

READ Staley marks first anniversary of murder of George Floyd

At the time of its recent third quarter figures, which saw the investment bank make a return on equity of more than 16%, Staley commented that the long-running question from investors about Barclays had been how the group would deliver its target return of 10% or better. “I think 2021 will be a pretty strong answer to that question,” he said.

Yet the inconvenient truth is that investors have not rewarded Barclays for the progress it has made in recent years. The shares still trade at a 30% discount to tangible asset value, which is low compared to other UK banks, let alone the Americans. Many investors continue to be sceptical about the investment banking operation, a caution that may last at least until they are tested by the next market downturn.

For those working in the investment bank, the appointment of Venkat could hardly be more reassuring about the board’s commitment to the current strategy. But unless investors become more convinced about the scale and breadth of the investment bank some nagging doubts are likely to remain.

To contact the author of this story with feedback or news, email David Wighton

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