Sky News’ Mark Kleinman is the man the City reads – and in his fortnightly column for City A.M., he shares his insight and analysis.
Barclays in the headlines again
What is it about Barclays and rough-Diamond bosses? In the end, the surprise was not so much that Jes Staley left the British bank mired in regulatory mess, but that it took so long.
Announcing his dramatic exit on Monday, Barclays said it was “disappointed at [the] outcome”, although it did not specify whether its regret was aimed at regulators or the man himself.
For a company which has been as accident-prone as Barclays over the last decade, the miracle was the apparently seamless appointment of a successor in CS Venkatakrishnan, its head of global markets. It would have been a corporate governance travesty, though, for a board which had been put on notice over a year ago that the City and banking regulators were conducting an investigation into Staley’s characterisation of his relationship with Jeffrey Epstein had a ready internal replacement not been lined up.
One theory doing the rounds in the City in the wake of Monday’s announcement was that JP Morgan’s private bank recently turned over a new cache of emails to the regulators containing further details of the Staley-Epstein relationship.
Whether or not that is true, Nigel Higgins, Barclays’ chairman, will need a convincing explanation when shareholders quiz him about the board’s previously unequivocal backing for Staley in light of the regulators’ conclusions. History tells us, though, that Barclays and convincing explanations don’t find themselves as regular bedfellows.
Co-op tie-up with TSB makes too much sense
How the wheels have turned. The Co-operative Bank’s audacious approach to Spain’s Banco Sabadell in an attempt to prise TSB loose may have been in vain for now – but don’t bet on it staying that way for long.
Few corporate combinations in British banking make more sense than a merger of the two mid-sized lenders, even after Rishi Sunak shifted the goalposts on the industry’s tax framework in his Budget last week.
A tie-up would, I’m told, generate cost synergies worth between £100m and £200m, while the enlarged group’s loan book balance sheet would enable it to compete more robustly in faster-growing product areas.
It would also have a ready-made management team (although the Co-op Bank’s chairman, Bob Dench, and chief executive Nick Slape might want to look away now) in newly appointed TSB chair Nick Prettejohn, a serious City figure, and Debbie Crosbie, its CEO.
Sabadell’s resounding “no” to the Co-op Bank’s £1bn-plus approach was only to be expected. TSB’s recovery, exemplified last week by the reporting of £110m in profit for the first nine months of the year, has been stronger than many analysts had expected.
That rebound does not make the British bank any more central to Sabadell’s future, though. Owning TSB only ever made sense if it was the basis for a consolidation play in a sector where scale is crucial.
The Co-op Bank’s addition of JC Flowers and Bain Capital Credit as shareholders earlier this years adds the requisite financial firepower and dealmaking knowhow to ensure that it emerges as the victor from a future auction.
There is a dual irony, of course, to the formerly mutually owned lender’s pursuit of TSB. Its original interest nearly a decade ago set in train the events that almost triggered the collapse of the entire Co-op Group. Ensuing inquiries into the crisis exposed the bank’s former chairman, the Rev Paul Flowers, as a drug-taking chancer.
In 2017, TSB was among the touted frontrunners to buy the Co-op Bank when it again ran into trouble and had to be bailed out by its shareholders.
It looks like the Co-op Bank will have to play a slightly longer, and more expensive, game. But saying it without Flowers will ultimately get it what it wants.
Another blot on the regulators’ copybook
About time too. A full five weeks after I revealed that IWG, the serviced office giant behind Regus and Spaces, was exploring a multibillion pound break-up, its board deigned to confirm it to the market.
“The board has undertaken a preliminary review to assess the strategic and commercial rationale for separating the digital and technology assets of the group into a separately identified and constituted business,” it said in a stock exchange announcement on Tuesday, 26 trading days after the news broke.
“Similarly, the potential to more broadly leverage the intellectual property of the group, together with the ownership structure of the property portfolio, is the subject of further review to fully assess the options available to reorganise the assets of the group.”
IWG’s advisers are said to believe that a break-up could value the sum of the parts at as much as £6bn – almost double its market capitalisation at yesterday’s closing price of 299.5p.
I’ve been a persistent critic of the apparently arbitrary enforcement of the London market’s disclosure rules, and IWG’s relaxed approach to confirming its exploration of an undeniably significant set of transactions represents yet another blot on regulators’ copybook.