By Nils Pratley
Chairmen, especially those embarrassed by the share price on their watch, feel obliged to examine any old merger or acquisition idea. But there are limits to what counts as credible and Barclays’ John McFarlane was seriously off-piste if he thought shareholders would be remotely interested in a corporate combination with Standard Chartered.
The idea provoked inevitable derision in the City. First, Barclays’ entire strategy for the past three years has been to reinvent itself as a US-UK “transatlantic bank”, minus its former African business. Merging with Standard, which operates almost exclusively in Asia and Africa, would be a U-turn too far. Second, regulators would probably demand substantially bigger capital buffers, thereby negating the appeal of Standard’s Asian deposit base. Third, the potential to rip out costs, banks’ usual justification for big mergers, would barely exist.
Barclays’ “exploratory conversations”, according to the FT’s report, were prompted by the perceived need to have a plan B to hand when the unsmiling agitator Edward Bramson turns rough. Bramson’s Sherborne fund has bought a 5.4% interest in Barclays and a confrontation of some form is inevitable because that is how activists justify their fees.
McFarlane and colleagues should drop their “blue sky” bumbling. Barclays’ share price, stuck around the 210p mark, is unimpressive but a panicky mega-deal could make things worse. Their thinking should be simple. If the board trusts the chief executive, Jes Staley, to grind out higher returns over time, let the strategy run. If it doesn’t, it should not have approved his plans in the first place.
For more read the full of article at The Guardian
