Barclays pushes to shrink investment bank
Barclays plans to accelerate the shrinkage of its investment bank by exiting trading operations in continental Europe, Asia and Latin America in a plan supported by incoming chief executive Jes Staley, according to two people familiar with the strategy.
Mr Staley, the former head of JPMorgan Chase’s investment bank, is expected to take over early next year, though he is still awaiting regulatory approval.
Some investors and politicians have interpreted the veteran American financier’s impending arrival as a sign that Barclays is preparing a bullish strategic shift to rebuild its investment bank.
However, people familiar with the bank’s strategy said the 58-year-old had already backed the plan to refocus Barclays’ trading operations on its core US and UK markets, with smaller presences in South Africa, Japan and one other Asian centre.
“He will be quite economically rational,” said a person familiar with Mr Staley’s thinking. “His orientation is to focus on New York and London, the main financial centres, and [almost] everything else will be representative offices.”
The retrenchment will mostly hit trading and securities operations in countries including Singapore, Hong Kong, India, Russia, France, Italy, Spain, Brazil and Mexico. Barclays declined to comment.
News of Mr Staley’s planned arrival from hedge fund BlueMountain Capital has lifted spirits in Barclays’ US investment bank, which was built on the acquisition of Lehman Brothers’ American operation but which has suffered several big name defections in recent years.
“It’d be great to have a CEO,” said a US banker at Barclays. “We’d obviously be delighted to have someone with an investment banking background and strong understanding of an investment bank.”
Antony Jenkins, who was fired after three years as chief executive in July, took two shots at restructuring the investment bank, promising to cut a quarter of the unit’s 28,000 jobs and shrink its share of group capital from half to a third.
Mr Staley has seen first-hand how UBS won plaudits from investors for slashing the capital-intensive trading operations of its investment bank even more aggressively. He joined the Swiss bank’s board earlier this year, but will step down if he is approved to join Barclays.
“He has got used to the capital-light model of investment banking and is quite admiring of the UBS model,” said the person familiar with Mr Staley’s thinking.”
Meanwhile, Barclays has been approached with an offer for its Italian retail banking network by Mediobanca, the Milan-based investment bank.
Syngenta Confronts Shareholder Frustration Following Monsanto Bid Rebuff
A small group of Syngenta shareholders plans a public push for a broad strategic review
Syngenta AG is confronting more frustration among some shareholders as the Swiss agribusiness company struggles with persistent challenges in its pesticide and seed business following its rebuff this summer of a takeover proposal from rival Monsanto Co.
A small group of Syngenta shareholders, led by an investor in its home country of Switzerland, plans a public push for the company to undertake a broad strategic review, according to two of them.
Separately, some Syngenta investors in the U.S. and U.K. have been discussing options including calling a special meeting of shareholders, said Mark Yockey, portfolio manager with Artisan Partners LP, a Milwaukee-based fund that ranks among the top 10 Syngenta shareholders, according to Thomson Reuters. Such a meeting would require the backing of investors holding at least 10% of Syngenta’s shares.
“It’s in everybody’s interest that people have a discussion,” said Mr. Yockey.
Another of Syngenta’s top 20 investors remains skeptical that selling its vegetable and flower-seed businesses—plans it announced after Monsanto’s retreat—will substantially improve results, according to a person familiar with the matter. That investor may not vote its shares in support of Syngenta’s management at the company’s annual meeting next year if performance doesn't improve, the person said.
A spokesman for Syngenta declined to comment on specific shareholders. Syngenta has said that some of its investors agreed with its board’s view that Monsanto’s proposal undervalued Syngenta’s business and faced serious antitrust challenges. Syngenta Chief Executive Mike Mack said in an interview this week that “we are talking to investors all the time,” and that “the Monsanto issue is now behind us.”
The world’s largest seller of pesticides and a major seed supplier to farmers, Syngenta is dealing with skepticism among shareholders nearly two months after U.S.-based Monsanto dropped a proposal to buy Syngenta for as much as $46 billion in a cash-and-stock transaction.
Combining Syngenta’s pesticide portfolio with Monsanto’s dominant position in biotech seeds would have created a global leader in both businesses, reordering the agricultural sector. But Syngenta’s board declined to enter formal negotiations, despite entreaties to do so from some investors, including Artisan.
Syngenta this week reported a 12% decline in third-quarter sales, weighed by economic weakness in Latin America and the stronger U.S. dollar. The same problems forced DuPont Co. last week to scale back profit expectations for the year, and played into a planned 12% employee reduction at Monsanto.
The small investor group, which includes just a few shareholders, is led by Folke Rauscher, a Swiss-based investor relations executive who said he owns Syngenta shares in his personal portfolio. He declined to say exactly how many shareholders have signed on.
He plans to outline his concerns in the coming days in an open letter to Syngenta Chairman Michel Demaré complaining that directors and executives have failed to deliver growth and ignored shareholders’ interests by rejecting Monsanto’s overtures, according to a draft of the letter reviewed by The Wall Street Journal.
Syngenta’s subsequent moves to sell the flower and vegetable-seed units and buy back shares reflect “a lack of strategic direction,” according to the letter
“We want to restart this discussion and make them aware that they have not calmed investors and shareholders by some short-term action,” Mr. Rauscher said.
The shareholders are trying to keep pressure on Syngenta to improve performance and seriously consider any future merger proposals, said Martin Lehmann, a partner with 3V Asset Management AG, a Zurich-based firm that says it owns Syngenta shares, and which has joined the group.
“They need to be accountable for this and to be reminded of their duties,” Mr. Lehmann said.
Mr. Yockey of Artisan said his firm isn't a part of Mr. Rausch’s group, but that he considers it a positive signal. “We think it makes a whole lot of sense to have something happen,” Mr. Yockey said.
Weekly Market Update: Markets Brush Off Weak Data and Earnings
Global equity indices closed out the week higher, digesting dodgy data and some weak corporate news to sustain the October rally. Two giant mergers in the beer and high tech industries overshadowed a slow start to the earnings season and a profit warning from Walmart. The US September retail sales report was particularly poor and the inflation data was shaky, adding weight to arguments the Fed would have a hard time hiking rates in 2015, while Chinese trade data was notably soft. Crude prices gave up most of last week's the gains, with WTI and Brent testing back to $45 and $50, respectively, as geopolitical fears wore off and oversupply reemerged as the overriding theme. The benchmark 10-year Treasury yield briefly moved below 2% for the second time this month and the 10-year TIPS breakeven rate moved back below 1.5%. For the week, the DJIA gained 0.8%, the S&P500 added 0.9% and the Nasdaq grew 1.2%.
US jobs, retail sales and inflation data added to the guessing game about the Fed's intentions. September inflation reports out this week told a familiar story: on an unadjusted basis, negative readings in the PPI (-0.5% m/m, -1.1% y/y) and CPI (-0.2% m/m, -0.1% y/y) reports for September continued to show that low energy and commodity prices are dragging down inflation levels. After excluding volatile food and energy components, CPI looks much healthier (+1.9% y/y), although PPI (+0.8% y/y) remains beaten down. The September retail sales data was terrible, with all components flat to negative, while the August figures were revised lower. Meanwhile, the August Job Openings and Labor Turnover Survey - one of Fed Chair Yellen's favorite gauges of labor market health - declined from the series high seen in July and missed expectations, but still remained very strong. The weekly unemployment claims data was much better than expected, with initial claims of 255K matching the 42-year low reached in mid-July.
Over the weekend, Fed Vice Chair Fischer clarified the Fed's thinking on policy in a major speech. Fischer said he did not anticipate global economic weakness to delay interest rate liftoff and asserted the Fed still plans to increase rates this year, though he characterized this statement as "an expectation, not a commitment." These comments were somewhat undercut by speeches from Fed doves Brainard and Tarullo who both cited continuing weak data as reasons to hold off on raising rates in 2015.
There was more bad news in the September China trade report. Total exports were in contraction for the third month in a row and imports saw their 11th month of decline. Notably, oil and copper imports increased somewhat from August levels. More downbeat news is anticipated from China's Q3 GDP report over the weekend, with growth below the 7% annual target rate expected.
Shares of retail giant Walmart gave up more than 12% this week after management slashed its longer-term outlook at an analyst meeting. Walmart executives warned FY17 earnings would decline 6-12% on due to the pay increase for associates announced earlier this year (the firm also lowered their FY16 sales outlook citing the effects of a strong dollar). Management said operating income would bottom out in FY17 will return to growth in FY19.
Poor bond trading conditions in the third quarter drove down revenues at the big US investment banks. Goldman Sachs's quarterly report showed its fixed income, currency and commodities trading revenue fell 33% y/y, marking a much more severe decline than the ones seen at BoA and JPMorgan. Citigroup's bond trading revenues dropped by 16% in the quarter. Both JPMorgan and Goldman missed top- and bottom-line expectations, while BoA and Citi's profits were healthy, as both lapped crippling legal fees from last year.
Big US industrials Honeywell and General Electric saw revenue decline in their third-quarter reports, and GE's profits shrank as well. Honeywell's profits rose y/y, although the firm also cut its FY guidance. GE continued its effort to shed financial assets, getting approval this week for the spin-off of its Synchrony Financial unit and selling GE Capital's $30 billion commercial lending and leasing business to Wells Fargo. Reports indicated that GE will apply to remove its systemically important financial institution (SIFI) designation early next year.
New Twitter CEO Jack Dorsey announced that the company would lay off up to 8% of its work force, to cut costs while it tries to find ways to attract new users. The company also said it would deliver third quarter revenue and EBITDA at or above its prior guidance. Later in the week, former Microsoft CEO Steve Ballmer caused a ruckus when he disclosed in a Twitter posting that he had acquired a 4% stake in the company.
Two megadeals dominated M&A news. Dell reached a deal to acquire EMC for around $67 billion in one of the biggest tech mergers ever. Dell will pay $24.05 a share in cash plus shares of a new tracking stock in EMC's prize holding, VMware, valued at about $9/share. The total deal price of $33.15/share is about 28% above EMC's closing level on Oct. 7, just before reports of the talks started circulating. AB InBev clinched a deal to acquire SABMiller, for £44/share in a deal valued around £69 billion pounds ($106 billion). The resulting firm will account for a third of global beer sales. The global deal, which is likely to face significant anti-trust scrutiny, includes a $3 billion break-up fee that AB InBev would be obliged to pay if the deal can't get approval.
Barclays pushes to shrink investment bank
Barclays plans to accelerate the shrinkage of its investment bank by exiting trading operations in continental Europe, Asia and Latin America in a plan supported by incoming chief executive Jes Staley, according to two people familiar with the strategy.
Mr Staley, the former head of JPMorgan Chase’s investment bank, is expected to take over early next year, though he is still awaiting regulatory approval.
Some investors and politicians have interpreted the veteran American financier’s impending arrival as a sign that Barclays is preparing a bullish strategic shift to rebuild its investment bank.
However, people familiar with the bank’s strategy said the 58-year-old had already backed the plan to refocus Barclays’ trading operations on its core US and UK markets, with smaller presences in South Africa, Japan and one other Asian centre.
“He will be quite economically rational,” said a person familiar with Mr Staley’s thinking. “His orientation is to focus on New York and London, the main financial centres, and [almost] everything else will be representative offices.”
The retrenchment will mostly hit trading and securities operations in countries including Singapore, Hong Kong, India, Russia, France, Italy, Spain, Brazil and Mexico. Barclays declined to comment.
News of Mr Staley’s planned arrival from hedge fund BlueMountain Capital has lifted spirits in Barclays’ US investment bank, which was built on the acquisition of Lehman Brothers’ American operation but which has suffered several big name defections in recent years.
“It’d be great to have a CEO,” said a US banker at Barclays. “We’d obviously be delighted to have someone with an investment banking background and strong understanding of an investment bank.”
Antony Jenkins, who was fired after three years as chief executive in July, took two shots at restructuring the investment bank, promising to cut a quarter of the unit’s 28,000 jobs and shrink its share of group capital from half to a third.
Mr Staley has seen first-hand how UBS won plaudits from investors for slashing the capital-intensive trading operations of its investment bank even more aggressively. He joined the Swiss bank’s board earlier this year, but will step down if he is approved to join Barclays.
“He has got used to the capital-light model of investment banking and is quite admiring of the UBS model,” said the person familiar with Mr Staley’s thinking.”
Meanwhile, Barclays has been approached with an offer for its Italian retail banking network by Mediobanca, the Milan-based investment bank.
Closing Market Summary: Stocks End Upbeat Week on Higher Note
The stock market endured a sleepy Friday session that capped an upbeat week. The S&P 500 added 0.5%, extending its weekly gain to 0.9%, while the Nasdaq Composite (+0.3%) underperformed on Friday, but still ended the week higher by 1.2%.
Overall, the Friday affair was pretty uneventful as the S&P 500 spent the bulk of the day in a ten-point range, climbing to a new high during the final hour. Four sectors settled ahead of the S&P 500 while the remaining six ended in-line with or behind the benchmark index.
Consumer staples (+1.0%) and health care (+1.0%) settled in the lead with the health care space holding up well despite an intraday swoon in biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 314.32, -0.44) shed 0.1% after being up 1.1% at the start of the trading day. For the week, the health care sector gained 1.9% while the biotech ETF also climbed 1.9%.
Moving to the cyclical side, consumer discretionary (+0.6%) and financials (+0.4%) displayed relative strength since the opening bell while energy (+0.2%), industrials (-0.2%), materials (unch), and technology (+0.3%) spent the bulk of the session in the red.
Interestingly, the energy sector faced a daylong struggle even though crude oil erased its early loss to end the day higher by 1.9% at $47.26/bbl.
Elsewhere, the industrial sector (-0.2%) spent the day behind the remaining nine groups to widen its weekly decline to 1.2%. Top-weighted sector component General Electric (GE 28.98, +0.95) spiked 3.4% after reporting operating earnings of $0.32/share, which may not compare to estimates as the company continues divesting GE capital assets, but that strength could not offset broad weakness among transport stocks. The Dow Jones Transportation Average fell 1.6% with KC Southern (KSU 87.37, -10.63) diving 10.9% in reaction to disappointing quarterly results.
Similar to stocks, Treasuries drifted inside narrow ranges, but unlike equities, the 10-yr note settled on its low with the benchmark yield rising two basis points to 2.03%.
Despite the quiet intraday action, more than 900 million shares changed hands at the NYSE floor with options expiration boosting the final tally.
Economic data was limited to Industrial Production, Michigan Sentiment, and JOLTS:
- Industrial production declined 0.2% in September after declining an upwardly revised 0.1% (from -0.4%) in August while the consensus expected a drop of 0.2%
- Manufacturing production declined for a second consecutive month and for a third time over the past four months. Production fell 0.1% in September after declining 0.4% in August
- The decline in manufacturing production was the result of a 0.1% decline in durable goods production. Despite lower output in the petroleum sector, nondurable goods production was flat in September
- The University of Michigan Consumer Sentiment Index increased to 92.1 in the preliminary October reading from 87.2 in September while the consensus expected an increase to 88.4
- The Current Conditions Index increased to 106.7 in October from 101.2 in September while the Expectations Index increased to 82.7 from 78.2
- The August Job Openings and Labor Turnover Survey showed that job openings decreased to 5.370 million from 5.668 million
Monday's data will be limited to the 10:00 ET release of the NAHB Housing Market Index for October (consensus 62).
- Nasdaq Composite +3.2% YTD
- S&P 500 -1.3% YTD
- Dow Jones Industrial Average -3.4% YTD
- Russell 2000 -3.6% YTD