• Anglo American mining looks to a rosy future
• Twitter recovers half its share-price blip
The mystery in the tale of Barclays’ latest bonus bonanza is that institutional shareholders are not screaming their complaints from the rooftops. Give it time. Many in the old-school investment camp – long-only London-based funds – are quietly seething about what they regard as a lost year at Barclays.
Many would agree with the Institute of Directors, hardly a cockpit of Marxist fury, that capitalism isn’t working at Barclays. Shareholders will get £859m in dividends and staff, chiefly in the investment bank, will collect £2.4bn in bonuses after a year in which profits fell steeply and the bank once again failed to achieve an adequate return on equity. As the IoD correctly says, the bank is being run for its staff, not its owners.
Shareholders’ reticence (so far) perhaps reflects that fact that the long-only brigade applauded chief executive Antony Jenkins’ “transform” programme a year ago. They bought Jenkins’ line that Barclays should be a “universal bank” and are not brave enough – yet – to tell Barclays to get smaller in investment banking and concentrate on retail banking and the slick Barclaycard operation.
But there’s nothing like a slumping share price to concentrate minds and change a mood. Barclays’ shares have fallen 8% since Tuesday’s full-year figures and the valuation is now horrible. The bank, still making substantial profits, is valued at just 0.8 times book value: the market is saying it expects Barclays to destroy value. Lloyds, by contrast, is priced at 1.6 times book value.
Jenkins probably has a year – no more – to improve matters. In January last year he was inviting staff who did not wish to live by the bank’s new “values”, which were taken to include a fairer cut of the spoils for investors, to leave. “My message to those people is simple: Barclays is not the place for you,” he wrote in a memo. Now he finds himself inflating the bonus pool to persuade equity salesmen and deal-makers to stay. He looks a weaker leader.
In Barclays’ world, there has been no U-turn. According to the official script, the bank merely overdid things a year ago when it cut the bonus pool to £2.2bn from £2.5bn. This year’s increase to £2.4bn is pitched as a roundabout route to the same happy land where the investment bank’s return on equity, just 8.2% in 2013, will consistently exceed Barclays’ bare-minimum target of 11.5%. It was always a three-year plan, comes the shrug from Canary Wharf.
Jenkins hasn’t got that long. He has taken a high-risk gamble that an investment in the “franchise” will make the ratios improve. That bet must succeed quickly. If not, Jenkins will find himself with a double headache in investment banking – sub-par returns and staff who wonder whether Barclays is really a committed owner.
April’s annual meeting, as in 2012, the last year of the unlovely Bob Diamond/Marcus Agius show, will be a bunfight. Afterwards, one suspects, old-style fund managers will calm down and see what the rest of the year brings. But, if Jenkins and chairman Sir David Walker are still torturing shareholders with miserable dividends and a similar bonus ratio next February, patience may snap. Jenkins is still a new boy, but he burned a lot of goodwill this week.
Anglo American turnaround
A turnaround programme elsewhere is going rather better. It’s early days for Mark Cutifani at mining group Anglo American – he has been chief executive for only 10 months – but there were no slip-ups in yesterday’s full-year numbers. It was a second year of losses, naturally, as $1.9bn (£1.1bn) of impairment charges bit. But the notion that there’s a coherent set of set of mining assets within Anglo is definitely alive.
Minas-Rio, the huge iron ore project in the Brazilian rainforest, will forever be remembered as one of the most overpriced acquisitions of a development asset in the history of mining: Anglo has written down $4bn of value and the delay in completion is at least three years. But as least Minas-Rio is finally arriving. Cutifani even has an acronym. FOOS – first ore on ship – is due by the end of this year.
The corporate prayer is for iron ore prices to stay strong. At $120 a tonne, there’s a healthy margin to be made on ore that can be landed in China for $55 a tonne. At peak production volumes Anglo would be collecting cash flows of $1.7bn at those prices. That would start to make a dent in net debt, up by $2.2bn to $10.7bn last year and still rising.
Other miners are far more advanced on their cost-cutting and debt-reduction programmes, as Rio Tinto demonstrated this week, and as BHP Billiton should do next week. Nor do they face the seemingly intractable difficulties that come with mining platinum in South Africa (the current strike at Anglo’s mines in Rustenberg is three weeks old). But Anglo is finally plotting a vaguely similar strategic course as the bigger beasts, albeit with a long lag.
Twitter’s shares have regained almost half the ground lost after the wobbly quarterly numbers on 5 February. That equates to a bounce of 14% – not a bad 10-day return. The shares are once again trading at more than twice the flotation price of $26 (£15.54) last November.
It’s very odd when you consider that Twitter’s arrival on Wall Street was a global news story – and a prod, one might think, for the uninitiated and the curious to investigate what the fuss was all about. Yet Twitter’s “timeline views” – the company’s measure of users’ engagement – fell in the final quarter of 2013.
Yes, Twitter did better than expected on revenues and profits. But those numbers are tiny. It’s the growth rate that matters with these social media stocks, we’re always told. When the stock is rated at 30 times annual revenues, it’s astonishing that investors are not more alarmed by the failure to translate oceans of free publicity into increased viewing. There is nothing like the faith of true believers in a tech story.
It’s war out there
It’s been an exciting week at the under-pressure supermarket Morrisons. There was a fluffy tale of private equity interest, which acclaimed former boss Ken Morrison said he knew nothing about, followed by City chat about a possible dividend cut.
Now chief executive Dalton Philips is offering his staff lessons in survival from the Vietnam war. Trade paper Retail Week reports that Philips cited the Stockdale Paradox at a staff conference this week. James Stockdale was the tortured, and highly decorated, US prisoner of war who said the key to survival was to avoid false hope and confront the most brutal facts of a situation.
If one overlooks the lack of direct parallels between selling baked beans and surviving the Vietnam war, Philips’ advice beats standard management-speak. Shareholders, though, may draw the prosaic conclusion that Morrisons’ sales figures are still rotten.
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