March 19, 2018 / 9:12 AM / a month ago

Activist investor Sherborne takes stake in Britain's Barclays

LONDON (Reuters) - Sherborne Investors (SIGC.L), led by activist investor Edward Bramson, has taken control of a 5 percent stake in Barclays (BARC.L), cheering other shareholders who hope the move could herald a shake-up of the British bank.

FILE PHOTO: Barclays bank building in Canary Wharf in London, Britain May 17, 2017. REUTERS/Stefan Wermuth /File Photo

Barclays is under pressure to bolster profits after Chief Executive Jes Staley’s aggressive push in investment banking since he joined in 2015 largely failed to bear fruit.

The bank, which announced a series of regulation-driven management changes on Monday, has struggled to keep pace with U.S. investment banking rivals.

Activist investors try to push through major changes in company strategy.

Barclays is Sherborne’s biggest target to date. Sherborne previous investments include targeting British private equity firm Electra (ELTA.L) and forcing a divorce from its management team and achieving a return of 113 percent as of May 2017.

One person with knowledge of the Barclays investment said the fund had met Barclays executives after the group announced annual results last month that fell short of expectations.

“As with all its shareholders, Barclays will continue to engage with Sherborne,” the bank said, adding it welcomed them as a shareholder.

By 1157 GMT, the bank’s share price was up 4 percent at 218 pence, its highest since May.

Sherborne said it had invested 580 million pounds ($808 million) in the bank’s shares and derivatives. The fund raised 700 million pounds in July, suggesting it could invest more.

A regulatory disclosure said Sherborne owned 1.94 percent of the shares, controlling the remainder of its 5 percent stake through derivatives.

Last week, shareholders told Reuters that Staley had one more year to deliver on his promise to turn its investment bank into a profit engine able to weather downturns or face demands for a review of the business.

“This won’t do any harm at all,” said one of Barclays’ 40 largest shareholders, welcoming Bramson’s support in putting Staley’s feet to fire in terms of cost and performance targets.

“It will be interesting to hear what specifically he wants them to do differently or push harder on ... he picks his targets very carefully,” the shareholder said, suggesting Bramson might shine a spotlight on the investment bank or capital allocation between the two main parts of Barclays International - the investment bank and the consumer, cards and payments business.

    “PERFECT ACTIVIST TARGET”

    Returns from investment banking have continued to underwhelm, despite a turnaround in market conditions, leading some shareholders to set Staley a deadline for an improvement.

    “We understand that Barclays have had a number of meetings with Sherborne but do not know the details of their activism,” a research note from KBW said.

    “In our opinion, there is clearly substantial opportunity for shareholder value creation from a change in direction,” it said, calling Barclays the perfect activist target.

    The FTSE 100 lender is also grappling with regulatory scrutiny of Staley’s role in the attempted exposure of a whistleblower.

    Shares in Sherborne, which describes itself as a turnaround investment firm on its website, were up 2.3 percent.

    Sherborne was founded in 1986 and is involved in both private and publicly listed investments.

    It invested in F&C Asset Management, displacing the chief executive and overhauling the regulated financial firm’s strategy in 2011. F&C was taken private by Bank of Montreal for 708 million pounds in 2014.

    “Bramson getting in is very interesting. He has a decent track record of making money in the companies he gets involved in,” another one of the bank’s top 40 investors, who declined to be named, told Reuters.

    Unlike some other activists who engage in public spats with their targets by publishing lengthy letters explaining reasons for their investments, Bramson has typically pursued his aims in a low profile manner.

    “It will be interesting to see if Bramson says anything about what he thinks Barclays needs to do to realize the value that he perceives,” the investor said.

    ($1 = 0.7179 pounds)

    Additional reporting by Helen Reid and Ben Martin in London; Editing by Louise Heavens and Edmund Blair

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