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Barclays (LSE:BARC) shares are trading at 285.30, up slightly more than 2% from yesterday’s closing price of 279.60, after opening at 285.40 and having climbed as high as 288.70, the bank’s new 52-week high, in morning trading. The boost followed publication of Barclays H1 report for the period ending 30 June 2015.
The giddiness in the Barclays board room, anticipating shareholder response to a Q2 net profit of £1.15 billion, a huge increase from the £161 million reported during the same period a year ago, may well have been subdued when they realized that the Financial Conduct Authority (FCA) also announced today that banks have been slow to “improve oversight and controls” that the agency had demanded in the wake of the Libor scandals.
At once proud to report that the net results included impairment charges attributable to the Libor scandal, the FCA criticism, leveled at all UK banks at large, made it difficult for investors to downplay Barclays role and subsequent charges. In fact, the FCA publicly worried that banks have continued misconduct to one degree or another over the last three years and that there has been a tendency to let the illegal practices fade into history as time passes. The problem is that the problem has not been fixed.
The FCA’s Tracey McDermott said that, “We have seen widespread historic misconduct in relation to benchmarks. It is now critical that firms act to restore trust and confidence in the system.” She indicated that, “The progress to improve oversight and controls around benchmark activities across most firms and within individual firms appeared slow,” and that, “This lack of urgency is disappointing given the importance of benchmarks to the economy, the similarity and severity of a number of previous benchmark failures, the high level of public concern as a result of the misconduct made public, and the scale of enforcement fines levied on firms.”
So, what is Barclays going to focus on? Not conduct, but cost-cutting and paying higher dividends. To a certain extent, this is understandable. It is, after all, the nature of the game to satisfy the investors. In facts, Executive Chairman specified his priorities as follows:
- Our first priority is to deliver on our strategy, with increased focus on our core franchises: what we are good at, where we are good at it and what is financially compelling to us.
- The second major priority of the group is to accelerate the delivery of shareholder value. We need to accelerate growth in earnings, return on equity, and capital generation.
- The third priority is to instill a high performance ethic and process across the Group, underpinned by an enhanced values driven culture. We need to be much more customer and client orientated in our approach, to streamline and eliminate unnecessary and cumbersome bureaucracy, and to embed direct accountability for activities within our businesses. Crucially we must do this in a way which is consistent with our values, and with strong controls in place, so that we build this business in the right way.
It is my personal opinion that the third priority is duplicitous, using carefully-chosen verbiage like “ethics” and “values” and “accountability” to appeal to the ears of the likes of the FCA when, in reality, the context speaks to the first and second priorities.
I sincerely hope that the future continues to be profitable for Barclays, but I hope that it comes as a result of the satisfaction of both customers and investors.
