Long term holders of Barclay’s shares, multi-year equity supporters of the international bank, have suffered this past year. The stock fell from a 12 month high of 475p to a portfolio crunching 50p, then back up to the recent high of 320p. The share price volatility perfectly articulates the roller coaster journey from the end of the last bull market through the near-collapse of the credit markets and into the current and ongoing economic and banking sector recovery. As soon as the sector is stable again. Barclays has taken the opportunity to sell-off its crown jewels iShares and BGI. The earnings those divisions produced will be hard to replace.
As mentioned in last week’s review, Barclays didn’t need a UK government bail-out and it was able to pass the stress tests without discomfort for a good reason. It raised substantial cash from Middle Eastern investors late last year in a deal announced on the 31st October. Management felt they had little choice. The sector was still in free-fall. Western institutional investors were hoarding cash, avoiding risky assets like the plague, and the only players in town awash with cash and confidence were Gulf billionaires, rich from proceeds of enormous oil and gas reserves. So Barclays management put on a brave face, welcomed these new and strategic long term investors and received the inevitable verbal broad-sides from the UK institutions that missed out on the equity issue (launched at a significant discount to the 2008 average stock price). This week, news that one of those long term strategic partners, International Petroleum Investment Company (IPIC), had taken advantage of the recent stock rally to off-load 1,304,835,721 shares, albeit at a large discount to the day’s price, was a further kick in the teeth to the mutual fund and pension companies that failed through indecision, or an alleged lack of invitation, to participate in the autumn equity raising. It’s impossible to blame IPIC. Their agenda is to manage their own portfolio, maximising risk-adjusted returns and to take advantage of opportunities as they arise, not to fix the balance sheet inadequacies of London listed banks. But next time a major UK institution needs a serious injection of cash, I suspect management will try just a little harder to work with local partners many of which would have supported the firm’s stock for decades, before embracing new long-term strategic partners with the gift of discounted stock.
The writer does not hold stock or other financial instruments that provide either direct or indirect exposure to any company listed in this article.
