US activist Edward Bramson does not give up easily. His vehicle Sherborne has reported an unrealised first-half loss of £193m on its investment in Barclays. Yet the activist recently increased his exposure to the UK bank to 5.9 per cent of its equity.
Barclays stock has not even been dropping for reasons helpful to Mr Bramson. The investment banking division he dislikes has done well in the pandemic. The shares have fallen 38 per cent, much less than Lloyds, because retail lending margins are weakening. Barclays has narrowed its price discount to Lloyds over the last year according to Bloomberg data.
When an investment is under water, we ask: “How long can the investor hold on?” Here, it is more of a case of “How long can Mr Bramson’s investors hold on?” Sherborne charged management fees of £2m in the first half. Shareholders such as Invesco, which owns one-fifth of Sherborne, are paying the activist tidy sums to lose them money.
Chances are currently zero of Mr Bramson getting elected to the board of Barclays and cutting back the investment bank. Sherborne’s interests are poorly aligned with those of other long-term investors. Refinitiv data suggests Sherborne only owns 2.1 per cent of Barclays directly. The remaining 3.8 per cent exposure appears to be indirect, via a low-cost derivatives arrangement with Bank of America.
Happenstance, in the form of coronavirus, has validated the strategy of Barclays chief executive Jes Staley for the time being. Sherborne investors must hope unpredictable events will now turn their way. An example would be damning conclusions from a regulatory probe into Mr Staley’s relationship with the financier and sex offender Jeffery Epstein.
Such hopes do not amount to an investment case. There is a better one for Sherborne to sell its Barclays exposure and return the money to investors. Its own shares trade at a 30 per cent discount to their net asset value. Something for an activist to take a look at?
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