Proxy fight targeting poorly-performing Barclays bank

Edward Bramson wants a Board seat

Barclays Shareholders will be proposed to vote on a shareholder proposal at next AGM.
The shareholder’s proposal is to elect Mr. Edward Bramson to the Board. Mr. Bramson is the Partner & Portfolio Manager at Sherborne & Company Incorporated. Sherborne Investors Management LP is the fourth largest shareholder and owns 5% of the share capital.

Mr Bramson has been campaigning for split banking over the last months, claiming Barclays would do better to focus on its UK retail operation and its credit card business rather than investment banking.

The shareholder, Sherborne Investors Management, has gained a reputation for pursuing aggressive shake-ups of under-performing companies. Its previous UK campaigns have included ousting the leadership teams at private equity firm, Electra, and at the fund manager, F&C, on the road to turning around their performance.

In a letter to the shareholders last December, Bramson criticised the Company’s tactic of using considerable capital and resources to chase modest or volatile investment banking revenues by undercutting rivals, which might beef up market share temporarily but offer poor long-term returns.

Barclays Board position

The Board recommends shareholders oppose the proposal as they consider that Mr. Bramson’s interests are not aligned with those of shareholders generally.

They anticipate that he would want to change the bank’s strategy to scale back the investment bank franchise, which they do not consider to be the right course of action for the bank.

Finally, they consider that Barclays has already been sufficiently restructured and would not benefit from the kind of strategies used by Mr. Bramson at other companies.

Our recommendation

Twelve years after the beginning of the 2007-2008 crisis, Barclays is still a laggard with its stock price standing at one-third of its April 2007 value.

The bank fared as one of the worst performer in the European Banking Authority’s EU-wide stress tests of November 2018, with a fully-loaded CT1 ratio at 6.00% (vs. 13.2% at FYE 2018) and a fully-loaded leverage ratio at 2.88% (vs. 4.5% for the UK alone at FYE 2018) in the Adverse Scenario for 2019.

Barclays has not covered its cost of equity (COE) since 2010 and has a Return on Equity (ROE) below its COE. Its 2018 ROE stood at a minimal 2.6% and is projected by bank analysts at c.7% in the next three years, which compares to a COE that currently stands at c.11%.

The board’s main arguments against Mr. Bramson’s candidacy do not convince us as the board seems to request again more time to do the same… errors. The board does not have a sense of urgency in tackling long term strategic issues about the bank profitability and shareholder returns. Mr. Bramson could contribute some well-needed and long-awaited revitalization to the board and splitting investment banking should be an option. Therefore our European service, ECGS, recommends shareholders to approve this shareholder proposal.

CEO’s behaviour toward a whistleblower

Mr.  James Staley, Barclay’s CEO, was investigated by the Financial Conduct Authority (FCA) over allegations that he spearheaded an effort to unmask the identity of a whistle-blower who had raised concerns in an anonymous letter over the hiring of Tim Main, a former colleague of the CEO while he was at JP Morgan.

The bank concluded in its internal investigation that the CEO honestly, but mistakenly, believed that his actions were permitted.   In May 2018, the FCA found that his actions breached the Individual Conduct Rule 2 (requirement to act with due skill, care and diligence).   The New York Department of Financial Services (NYDFS) and the Federal Reserve Bank of New York conducted separate investigations following which they imposed a $15m civil penalty on Barclays Bank PLC for failings in its whistleblowing program. All regulatory investigations relating to these events are now concluded.

Shareholders should be able to expect without any level of doubt that the CEO will undertake the role with the utmost of due skills, care and diligence.  Mr. Staley’s behaviour toward a whistleblower, which is an essential function serving in part to protect shareholders from risks, raises concerns over his suitability for the role. 

As a result of the investigation into the CEO’s conduct in trying to identify a whistleblower, the FCA and PRA each fined Staley 10% of his total remuneration, which was reduced to GBP 917,800 after he agreed to settle at an early stage of investigation. The Company also reduced his remuneration by using the malus clause on his 2016 variable remuneration, which  deducted an additional GBP 500,000.

In general, the structure of remuneration is unacceptable. The quantum is considered excessive due to the use of fixed compensation, which has been implemented in order to circumvent the bonus cap imposed upon the banking industry as introduced in 2014 by the CRD IV directive. Incentive pay is considered excessive and setting STI and LTI limits as a percentage of fixed pay now make it effectively a higher total compensation. There is a strong overlap between the performance criteria used for the STI and the LTI.

 ECGS recommends shareholders oppose the re-election of Mr Staley as executive director and the Say On Pay vote.

Proxinvest is the managing partner of Expert Corporate Governance Service, a proxy firm made of multiple local experts. ECGS proxy reports are available on ECGS client website and the ECGS report about Barclays AGM is available on a pay per view basis Research platform Researchpool :

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