A hoop dream that could boost Barclays
The British lender aims to grab a slice of US banking by signing a $300m deal with Jay-Z's basketball team, writes Stephen Foley
Friday 12 March 2010
Is Barclays the Leona Lewis of banking, or the Robbie Williams? It is the British star that wants to make it famous in the US – but does it really have a shot at a Leona-style No 1 in the States?
Bob Diamond, the Massachusetts-born president of Barclays, hopes that the duet he did with Jay-Z yesterday will help. The pair appeared together at the ground- breaking ceremony for the new Atlantic Yards basketball stadium. It will be home to the New Jersey Nets, the NBA franchise in which the rapper has an ownership stake.
It will be a shiny new stadium, slap in the middle of the New York City borough of Brooklyn, and it will have a giant Barclays logo over the door. Trouble is, unlike in the bank's home country, the hundreds of thousands expected to flock to the venue every year aren't likely to have the foggiest what the name refers to. Its Wall Street arm, Barclays Capital, did buy Lehman Brothers' US business out of bankruptcy in 2008, but for the man on Main Street, it is still a case of: "Barclays? Who?"
The naming rights to the so-called Barclays Center (yes, the Brits will stick with the American spelling) came with a putative 20-year price tag of more than $300m. "I'm being facetious a bit but maybe this is why Barclays is considering buying a US retail bank," said Ian Gordon, an analyst at Exane BNP Paribas, in response to market speculation this week that the company is scoping out US targets to buy. "An acquisition doesn't have many obvious synergies, but maybe there are some brand synergies from the naming rights which are not currently being tapped."
Mr Diamond – proudly displaying a "Brooklyn" lapel badge on his pin-stripe jacket – said after yesterday's ceremony that the rights were even more valuable now than they were when they were signed in 2007. He added: "Today our business is much more prominent, because of the opportunity we had to buy Lehman, both the investment banking business and also the private banking and wealth business. Post-Lehman we would like to do more things on the retail side of the business so that we have balance in the group between retail and wholesale."
As far as retail customers go, the sort that might be impressed by a name over the door of Brooklyn's answer to Madison Square Garden, Barclays has plans to expand its Barclays Wealth business, which looks after rich people's money. Mr Diamond and the chief executive, John Varley, are also believed to be examining potential acquisitions.
A retail bank, taking deposits from all-comers, and with a high-profile branch network, is on the cards if the right deal comes along. With many US banks in trouble as a result of soured commercial property loans, Barclays thinks it could snap something up for a bargain.
Two things have pushed such a deal up the agenda. Firstly, emerging markets enthusiast Frits Seegers, who was head of Barclays retail businesses, left the company last November, taking with him his scepticism about the wisdom of expanding in a mature market such as the US.
Secondly, the Obama administration has proposed a new tax on banking in the US, to recover bailout money. Banks will be taxed according to the size of their liabilities, but minus retail deposits – the idea being to encourage them to balance funding from the fickle financial markets with a more stable deposit base. Barclays will be relatively hard hit by the tax unless it can boost a retail deposit base that is currently a puny $4.6bn. From a strategic point of view, BarCap's success since taking on Lehman suggests volatile Wall Street earnings will make up more than half of Barclays' profits from now on, unless less cyclical businesses are bolted on. The trial balloon that went up this week about a retail banking or wealth management purchase in the US attracted a little shareholder criticism back home, but the idea was not actually shot down by the markets. UK banks do not have a wonderful track record expanding in the US, with HSBC's disastrous purchase of Household, the sub-prime mortgage lender, being a case in point. It was also noted that Barclays, too, has form when it comes to dangerous empire-building.
"There is a legacy of ambition at Barclays from its attempt to buy ABN Amro which fuels suspicion," says Mr Gordon. "But the team has acquired credibility in mergers and acquisition activity over the past two years, and the Lehman Brothers deal is an obvious example. A non-investment banking deal in the US, a non-transformational deal focused around funding balance, could make strategic sense."
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