Barclays (LSE: BARC) (NYSE: BCS.US) has advanced 57% to 285p during the last 12 months, making the share one of the best performers in the FTSE 100 index.
However, the returns of the past year are truly a story of two halves as Barclays’ shares climbed 81% from 4 September 2012 to 12 February 2013 and have since slid 13%.
The real spark behind the climb in shares was the cleaning out of the executive suite. Last summer, Barclays was embroiled in the LIBOR (the rate at which London banks are willing to lend to each other) fixing scandal as well as charges of mis-selling products to customers.
These failures in ethics badly damaged the bank’s reputation, opened it up to significant financial penalties, and spelled the end for once mighty CEO Bob Diamond.
In with the new
His replacement Anthony Jenkins took the helm at the end of August 2012 with the mandate to clean house and rehabilitate the bank’s image. The fact that he was previously head of Barclays Retail and Business Banking set him in stark contrast to the fallen Diamond, who made his reputation as an investment banker.
Jenkins kicked off his time as CEO with a promise to keep both the bank’s retail (that’s banking for folks like you and me) and investment banking operations (what some call a universal banking model), while taking a close look at each of the bank’s 75 businesses with an eye to culling those that weren’t profitable enough to contribute.
In February, Jenkins presented investors with his three-year plan to get Barclays back on track and make it the world’s “Go-To Bank.” The gist of the plan was to change the corporate culture and put customer satisfaction ahead of profits while eliminating any businesses that couldn’t carry their own weight.
Actions and words
Perhaps Jenkins’ plans didn’t go far enough for investors, but a lacklustre first quarter during which operating profits (before the costs associated with achieving Jenkins’s plans) fell 5% definitely didn’t help.
The real blow to the Barclays story since February, however, was the declaration by the Prudential Regulation Authority (PRA) that Barclays needed £12.8bn in additional capital to be deemed safe.
Not only did this shake investor confidence about the bank’s balance sheet once again, but it forced Barclays to go to the market hat in hand looking for £5.3bn in funds.
While this capital raise may help restore confidence in Barclays’ balance sheet, it is costly for existing shareholders and stirs up memories that the appointment of Jenkins was supposed to have erased.
As a result of the PRA’s ruling, Jenkins was forced to postpone his profitability targets by a year, but this is what investors will be most focused on — can his transformation plans establish Barclays as a profitable bank with the kinds of returns shareholders are looking for?
Where from here?
It is still early days in the Jenkins regime, but investors will surely be tuning into the next earnings update on 30 October to see if there are signs of things getting better.
It is one thing to promise a new, friendlier culture as well as shareholder pleasing returns. It is quite another to deliver — especially if you have to keep fighting ghosts of your troubled past.
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> Nate does not own any share mentioned in this article.
