UBS: Barclays too big for UK

BARCLAYS will have no choice but to consider leaving the UK, according to prominent UBS banks analyst John Paul-Crutchley.

In a note to investors asking if the bank could be “the first to leave” London, Paul-Crutchley said yesterday that Barlcays and JP Morgan are “broadly comparable”, except that the Fed has given JP Morgan permission to up its dividend whereas “Barclays remains mired in the fog of regulatory uncertainty”.

Comparing the £554m compensation that Barclays paid to its top managers versus the £653m it was permitted to pay out in dividends by UK regulators, he said: “If this difference [between local regulations] becomes permanent, we think Barclays has little option but to consider shifting domicile.”

Paul-Crutchley adds that moving its headquarters to a larger economy could make sense for Barclays given that its balance sheet is equivalent to 100 per cent of GDP. “Rather than Barclays being too big [to fail], it may well be that the UK is too small.”

The analysis points to Barclays’ 2010 annual report, which lists only HSBC in its peer group in the UK. Speculation on whether London could lose a major bank due to stringent regulation has centred on HSBC due to the bank deriving most of its revenues abroad.

Paul-Crutchley also estimates both Barclays’ and JP Morgan’s core tier one capital ratio under Basel III as opposed to Basel I or II, which neither of the banks have yet disclosed.

The estimates come out at 7.81 per cent for Barclays and 7.23 per cent for JP Morgan. If accurate, it means both banks have their work cut out to meet Basel III requirements (seven per cent) plus a likely capital surcharge for “too big to fail” banks, which is expected to be two to four per cent.