CHIEF executive Bob Diamond’s grand promise of a six per cent rise in returns in three years was greeted with incredulity in some circles yesterday.
Evolution Securities’ Arturo de Frias decried the promise, saying: “We find all this way too bullish, and very difficult to believe... We don’t believe in ‘miracles.’”
The plans rely on a decreasing cost of equity to 11.5 per cent, from 12.5 per cent currently, which could raise eyebrows in an increasingly harsh regulatory environment.
Diamond certainly has his work cut out. The bank’s exposure to Spanish property, for example, is worrying: it took Barclays Corporate down to a full-year loss of £613m, with more turmoil in store for Spanish banks.
But Diamond is fighting to convince investors with a promise to cut costs by £1bn by 2013. Following the morning’s announcement that the bank plans to sell off its Russian operations, he then unveiled a chart, revealing that 35 per cent of the group’s equity is returning less than its cost of capital (see chart, bottom right).
Analysts’ curiosity was piqued: they wanted to know where along the line each unit lay and what fate – whether a sell-off or cost-cutting – awaits those in the red region.
Diamond wouldn’t be drawn on details, but investors would be foolish to underestimate him. “Banks will be in mid-single digit returns unless they take action,” he emphasised yesterday. He is well aware of the magnitude of the task.