Tuesday, 11 November 2008

Barclays - ownership is on the line

This is a bit of a rant, but the more I look at the proposed deal whereby the investors from Qatar and Abu Dhabi get to snap up a big chunk of Barclays, the less I find anything to like about it. It is a waaaay worse deal than that available from HMT in terms of the capital injection, plus the investors get warrants (effectively the right to buy more shares at a given price in the future), but existing shareholders don't get a slice of the warrants. For existing shareholders - and that means by extension all of us with pensions and investments that have shares in Barclays - this will be a significant dilution, plus we don't get access to any of the good stuff.

You can, and Barclays does, make the argument that having HMT as a shareholder would restrict their freedom to operate. But a) it looks like under this deal an even larger chunk of Barclays will be held by a small group of investors - how do we know they won't seek to influence the Barclays board? - and b) all the signs are that Government won't (for good or ill) be trying to be a back seat driver to the banks in which it has taken a stake. Barclays also makes an attempt to argue that having HMT as a shareholder might affect the share price but a) the opposite may actually be true, lets's wait and see and b) maybe the presence of these other controlling shareholders could also affect the price. Why not?

I really don't see why existing investors should put up with this, not least because there is quite a bit of space between the deal being proposed and taking the taxpayers' shilling. Even if the City really does want to avoid part-nationalisation of Barclays, could they not push for something better than this?

I'm starting to think that this could be an important event in terms of policy on the nature of company ownership. If shareholders - which primarily means fund managers - simply swallow this deal because management says they should, it really does punch a hole in the 'shareholders are owners' argument. If the 'owners' of a major UK-listed company can't even oppose an obviously bad deal (in the sense that a better one for them is available), in a situation where the bank needs a serious funding injection whatever remember, how can we take seriously the idea that this works effectively as an ownership model?

And remember it's your money in there. These investors are supposed to be acting in your best interests. Do you think simply meekly accepting the dilution and devaluation of the rights that they have as a result of investing your capital is doing a good enough job? I don't.


Charlie Marks said...

Being a Marxist I'd've taken the opportunity (had I, by some quirk of fate, been appointed Chancellor) to nationalise the banking sector and lend directly to industry...

Come to think of it - this sounds like the only way to save capitalism in the UK. Without credit on reasonable terms, thousands of businesses will go bust.

To add to the ironies, word is that the Bank of China's looking to buy HBOS - and a prominent Scottish financial is calling for the bank to be nationalised.

Funny old world, isn't it?

CapitalWorker said...

Why not go one step further and stop banks issuing new money into the economy and return that to the state. Banks can still circulate money and charge for it I suppose. But better the state issues notes for production and when required on the consumption side as well. national and global government can then give incentives to productive activity, rather than transactional activity. Then pension funds might invest in companies that supply need and move away from banks.

Tom P said...

Is that Ben by any chance?

John Gray said...

My guess as well (or his twin saff London Bro?)