Barclays shares slide as merger plans stay vague
Wednesday 18 February 1998
News of a pounds 500m share buyback programme failed to cheer analysts, many of whom had been hoping for a bullish statement on future strategy.
But although Martin Taylor, Barclays' chief executive, said the case for further rationalisation was "compelling", he refused to comment specifically on the identity of possible merger partners.
One banking analyst said: "Consolidation rumours have driven this share price up, and if he [Mr Taylor] doesn't say anything positive on consolidation soon, people are going to get a bit worried."
Persistent takeover rumours - in particular, speculation about a possible link-up with NatWest - have sent Barclays' share price soaring in recent months. Since the autumn, shares have risen by more than a third. But yesterday they shed 118p to close at 1813p.
Barclays' pre-tax profit for the year to December slumped 26 per cent to pounds 1.7bn - lower than expected - prompting unfavourable comparisons with rival Lloyds TSB, which last week unveiled record 1997 profits of pounds 3.2bn.
The sell-off of parts of BZW, Barclays' former investment banking arm, was the main reason for the profit fall. Two weeks ago, the bank admitted that it would take a pounds 688m hit following the sale of its equity and corporate advisory businesses.
The City had already been told about the BZW figures, but was surprised yesterday by the size of some other costs.
The bank has set aside an additional pounds 25m to cover compensation for non- priority cases in the pensions mis-selling scandal. It also said yesterday preparations for EMU and the year 2000 would cost a total of pounds 400m.
If the UK enters EMU on a retail basis, where the currency will be used on the high street, Barclays will incur a further pounds 300m in costs as cash machines and other types of technology are changed.
Barclays took the opportunity yesterday to spell out its degree of exposure to Asia. The bank has an exposure of pounds 1.2bn to Korea, Indonesia and Thailand, 15 per cent of which is in the corporate sector. Barclays has made an additional provisions of pounds 45m to cover the increased risk of default in Asia.
When questioned about the possibility of mergers in the banking industry, Mr Taylor reiterated his view on rationalisation in the sector.
He said: "I think the arguments for banking consolidation in the next decade are absolutely compelling. There is no doubt at all that we'll see a substantial reduction in the number of international banks." Although he expected there would be cross-border mergers, "you do tend to get domestic consolidation first, for all sorts of reasons".
But Mr Taylor would not be drawn into a discussion of likely merger partners for Barclays, although he admitted "cultural incompatibility" could destroy shareholder value.
Mr Taylor also provided details of Barclays' new structure, which will come into effect on April 1. The bank is to be re-organised into four groups: Retail Financial Services, Corporate Banking, Barclays Global Investors, and Barclays Capital, the remnants of BZW.
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