Aurelia Butler

LONDON (Reuters) – Barclays (LON:BARC) is betting it can revive its wilting share price by upping investment in a crop of its smaller businesses including U.S. credit cards, sources familiar with the matter said. But some of its top shareholders would prefer the quicker fix of a buyback. Chief Executive C.S. Venkatakrishnan is studying plans to allocate more capital to the bank’s wealth management, U.S. credit card and global payments activities to boost returns, according to people familiar with his thinking and reported here for the first time, after drafting in Boston Consulting Group (BCG) to review strategy earlier this year. A team of BCG consultants has taken up temporary residence at the bank’s headquarters in London’s Canary Wharf financial hub to help management brainstorm an optimal investment plan, one source familiar with the BCG review said.The lender is pursuing an in-house review as well, the source added. Another source inside Barclays’ investment bank, talking anonymously because they are not authorised to speak to the media, said lower staff attrition at its technology and back office operations had started to worry cost-conscious managers.The BCG review could lead to layoffs, the source familiar with the review said, although no decisions have been made.”As you would expect, we frequently work with various external consultants,” a Barclays spokesperson said.A spokesperson for BCG declined to comment.Some top Barclays investors, however, told Reuters they would have misgivings about a plan to prioritise investment over capital distributions.They question the logic of pumping more capital into divisions that are small relative to their competitors as the global economy shivers and the lender’s shares suffer.Instead, they want to see tighter cost control, twinned with bigger buybacks and dividends after the bank completed a modest 500 million pound ($646 million) buyback programme in April.”We are keen to see the businesses we invest in acquire and grow if they can do so in a way that adds shareholder value,” said Richard Marwood, senior investment manager at Royal London Asset Management, one of Barclays’ 30 largest shareholders, according to Refinitiv.”The hurdle they have to clear is: are the acquisitions better uses of capital than retiring equity? When your shares are lowly valued, that is a tougher benchmark to beat.”‘NERVOUS’For Venkat, as the veteran banker is commonly known, the stakes are high.Two years into his tenure, Barclays’ stock price to tangible book value, a measure of market value against assets, is 0.54, the lowest among major British banks and well below rival HSBC’s 0.87, Refinitiv data shows.Barclays emerged from the 2008 financial crisis with a once-in-a-generation opportunity to bulk up on Wall Street, after buying Lehman Brothers’ U.S. operations. But nailing the right business mix to woo new investors without repelling its more conservative backers has challenged executives ever since.After defeating a push by activist investor Edward Bramson to shrink its investment bank in 2021, the 330-year old lender has stuck to its transatlantic universal banking model spanning investment banking, and consumer and corporate lending, gradually growing group profits. But a recent shake-up at its investment bank has raised concern about Barclays’ ability to compete amid a worldwide dealmaking slump.A U.S. securities trading blunder that triggered a $361 million regulatory penalty and blighted recent earnings remains a drag on shareholder confidence too.That has made investors “nervous about investment over the simple maths of buying back shares at half book value,” said Richard Buxton, investment manager at Jupiter Asset Management, a top 25 Barclays shareholder, according to Refinitiv.”I can understand why Barclays wants to invest more behind sub-scale businesses if they can evidence getting the returns from them,” he added.Some smaller investors hope the BCG review might offer a fresh take on whether an investment banking spinoff could give shareholders the value they crave.”You might get a better valuation if you demerge the investment bank … They are not valued properly together,” said Alan Beaney, chief executive at RC Brown Investment Management, which has held Barclays shares since 2012.A Barclays spokesperson said the bank’s businesses continued to perform well and its business mix was “robust”. OVERHAULSBarclays has also engaged another global consultancy to analyse whether some of its payments businesses should be expanded or combined with other providers, Reuters reported in June.Meanwhile, Barclays’ stock has fallen around 3.5% this year, underperforming a 10% gain in a benchmark index of European banks and internationally-focused European rivals like BNP Paribas (OTC:BNPQY) and HSBC, which have risen by around 5.5% and 18% respectively.Barclays underwent several major overhauls in the decade following the 2008 financial crisis, including a 2014 jobs cull and a 2016 exit from Africa.But while such strategies have helped to keep Barclays in the black throughout the pandemic and the current bout of inflation-led economic malaise, management faces a battle to convince investors they can depend on those returns.Barclays’ goal is to hit a return on tangible equity, a key measure of profitability, of more than 10%. While its British retail and business banking arm delivered 18% in 2022, the two other divisions which house payments and investment banking narrowly scraped the 10% goal.”We estimate the bank ought to be able to generate around 19 billion pounds of profit over the course of 2023-2025, and we believe more of this should be returned to shareholders to better address the share price weakness as opposed to another strategy review,” Jefferies analysts said in a note.($1 = 0.7736 pounds) More

Dan Davies is a managing director at Frontline Analysts, a research firm. He is the author of Lying For Money and is also available on Substack.Could it be . . . could it possibly be the case that a huge amount of economic punditry, comment and even policy was based on a simple data problem? Well yes, obviously, that happens all the time. Now it appears that “expansionary bankruptcy” might be on a factual footing almost as weak as “expansionary austerity”: a new study by the European Systemic Risk Board casts significant doubt on whether so-called zombie companies are anything like as great a threat to the economy as was previously feared.What is a zombie company? It’s annoyingly difficult to define in rigorous terms, so we’ll come back to that question. The underlying idea, though, is that it’s a lousy company that in some sense ought to have gone bankrupt, but which is continuing to pay wages and suppliers by taking out soft loans from an equally lousy bank that doesn’t want to admit that its client is bust. It’s often assumed that there are lots of these dysfunctional bank/corporate relationships in Japan and Europe, and that as well as being an aesthetic offence against the values of creative destruction, they have a sclerotic effect on the economy as a whole. Various research papers over the years appear to have found that when you have lots of zombies hanging around, more vital and efficient companies are starved of funding.This is, of course, a wholly different phenomenon from a lousy company which should never have existed in the first place but which is able to continue funding its losses by taking successive equity injections from venture capital firms who don’t want to admit that their investment is bust. That’s not a zombie, requires no investigation and certainly doesn’t have any crowding-out effects. Please don’t raise that question again.All previous work, however, has been carried out using aggregate measures of one kind or another, correlating the prevalence of zombies in an industry with various measures of output and inferring causation. The ESRB team, however, have access to AnaCredit, the analytical credit data set of the ECB. This is a map equal in size to the territory — it includes literally every business loan in the euro area since 2018 that was over €25,000 in size. When combined with an equally huge database of company accounts, it’s possible to see whether zombies do actually get special treatment.It turns out that they don’t. In general, zombie firms pay more for their credit than healthy companies, and are less likely to have new loans extended. Banks with a lot of zombie customers don’t seem to reduce their lending to healthy firms, and if anything they tend to reduce their pricing to their decent customers. If there is any negative effect of “zombification”, it has to work through much more circuitous channels; the zombies don’t starve healthy firms of finance.Or alternatively, there might not be any effect to measure. In an Appendix, the authors find that in any given year, there’s only about a 30 per cent chance that a company identified as a zombie on their criteria will still be considered a zombie next year — more than two-thirds of them either recover or go bust in the next twelve months. This is because the ESRB team has used a quite restrictive definition based on negative return on assets (unprofitability), negative change in fixed assets (to screen out growth companies and startups) and ebitda/financial debt less than 5 per cent (to pick up financial distress). Other studies, using different measures have much higher persistency rates.And this underlines the whole problem here — what you get out of the data is determined to a great extent by what you went looking for. Working with aggregate statistics is the professional deformation of empirical economics — like a geologist working with seismics, you have information that’s collected at a much lower resolution than the structure of the thing you’re hoping to understand, so you have to impose a theoretical framework on the data to draw a picture. That’s all fine, unless you forget you’re doing so, or get confused about whether the conclusions are coming from the data or from the framework you imposed.The idea that it’s a good thing for the economy when a company goes bankrupt is attractive to some economists for theoretical reasons. It’s true in some circumstances and, because it’s got that attractive whiff of brimstone, policymakers can feel like they’re being tough and taking the decisions that softie politicians don’t have the guts for. But there’s an alternative theory — that insolvency is bad, and that productive enterprises ought to be given as much of a chance as possible before winding them up — which is also true in some circumstances. The American economy, with a very borrower-friendly bankruptcy code, does well out of a system which closes down companies quickly, but that doesn’t necessarily mean that copying US foreclosure practices will get you US outcomes.And just as JK Galbraith defined the “acceptable rate of unemployment” as the rate that’s acceptable to those who have jobs, economists working for finance ministries and central banks don’t necessarily have as much skin in the game as you’d like when deciding what’s a temporarily troubled company and what’s a sclerotic basket case that needs to be taken to pieces for spare parts. If troubled European borrowers don’t affect credit availability for their healthy competitors, and have a better-than-even chance of recovering themselves, then there’s a disconcerting probability that what we’re looking at is not a zombie apocalypse, but rather a bunch of excitable policymakers who want to go round bashing their neighbours’ brains in with a shovel. More

The survey by Genial/Quaest showed that 53% of market players now think Brazil’s economy will improve in the next 12 months, up from just 13% in a May poll, while those who believe conditions will get worse plunged to 21% from 61%.The shift in opinion among a group that has typically been wary of the leftist president comes as the Lula administration secured support in Congress for bills seen as key to its plans to boost growth.Those include proposed tax reform, changes to tax trial rules and a new fiscal framework aimed at controlling explosive public debt growth.”This improvement has been driven by the work of Finance Minister Fernando Haddad,” Quaest director Felipe Nunes said. “Haddad’s performance has managed to convince markets the country’s economic policy is heading in the right direction.”While Lula’s own approval ratings continue to stutter, Haddad’s approval among market players jumped to 65% from 26%, with those who consider his work to be negative dropping to 11% from 37%.Markets were happy with the government’s decision to keep its 2026 inflation target at 3% while tweaking the time frame to assess its fulfillment, the poll showed. They also approve of central bank Governor Roberto Campos Neto’s performance.The growing optimism about Lula’s economic management is bad news for former President Jair Bolsonaro, who enjoyed support among some of Brazil’s finiancial elite. Bolsonaro is now barred from running for public office until 2030, leaving his former right-wing coalition scrambling for a new political vision. Quaest polled 94 fund managers, economists and analysts working for 67 different firms in Sao Paulo and Rio de Janeiro between July 6 and 10. More

(Reuters) -Inflation is slowing rapidly enough to allow the Federal Reserve to stop tightening U.S. monetary policy after what is still widely expected to be an interest-rate hike at its meeting in two weeks’ time, traders bet on Wednesday. Implied yields on futures tied to the U.S. central bank’s policy rate fell after a Labor Department report showed consumer prices last month rose 3.0% from a year earlier, a big step down from its 4.0% pace in May.Underlying inflation, whose persistence has been particularly worrying to Fed policymakers, eased more than expected to 4.8%. With that core inflation figure still more than twice the Fed’s 2% target, traders continue to overwhelmingly expect policymakers to increase the benchmark rate a quarter point, to a 5.25%-5.5% range, at their July 25-26 meeting. But they now see little more than a one-in-four chance of another rate hike before year’s end, down from a more than one-in-three chance seen before the report, futures prices show.”Clearly inflation is heading in the right direction, and this is showing that they’ve made significant progress in their battle to tamp it down,” said Art Hogan, chief market strategist at B Riley Wealth in Boston. “Even if they raise rates at the end of this month, that may likely be the last time.” More

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen’s trip to China has raised hopes in Beijing that Trump-era tariffs on Chinese imports may be eased as she tries to smooth relations between the two nations, but strong anti-China sentiment in the U.S. may make that impossible.Trade and political analysts in Washington say that even though cutting some of the “Section 301” tariffs would help U.S. companies and consumers, as well as Chinese exporters, doing so would expose Biden to a buzz-saw of Republican criticism at a dangerous time. “The political calculus is pretty clear,” said Harry Broadman, a former White House, World Bank and U.S. trade official who is now a managing director with Berkeley Research Group. “That would be red meat for the opposition.” Looking soft on China could cost Biden the 2024 presidential election, he said, adding that anti-China sentiment in the U.S. in recent years is the highest he’s ever seen, fueled by former President Donald Trump’s China policies. HIGH HOPES IN CHINA Yellen discussed trade irritants and other policy differences with China’s top economic officials and Premier Li Qiang for a marathon 10 hours over two days last week — meetings that she said put U.S.-China ties “on surer footing.” U.S. tariffs and high technology export controls to Beijing’s new anti-espionage law that threatens the activities of U.S. companies in China were among the topics, the U.S. Treasury said. Yellen said nothing publicly to indicate that the U.S. was poised to ease tariffs, but commentators in China were hopeful, amid a U.S. Trade Representative review.In a statement on Monday, China’s Finance Ministry called for the U.S. to cancel punitive tariffs, roll back export curbs and end import bans from Xinjiang province. “Yellen has a say in the next phase of the U.S.’s four-year tariff review,” said Hong Hao, chief executive of Grow Investment Group in Hong Kong. “While U.S might continue its technological curbs on China, a reduction or exemption of non-core tariffs against China is possible.”China’s state-run Global Times, normally a harsh U.S. critic, called Yellen a “professional and pragmatic” official who could influence the Biden administration to take such steps to improve the economic relationship. Yellen last year advocated eliminating some duties on “non-strategic” goods as a way to ease some specific costs amid high inflation.But U.S. political pressure to raise China tariffs is growing, said Chad Bown, a trade economist with the Peterson Institute of International Economics who has researched them extensively.”There is no political appetite to reduce tariffs on China – Secretary Yellen will do well in this political climate if they manage to stay where they are,” Bown said.U.S. officials have been tight-lipped about any response to the Chinese call for action, noting that no new initiatives were under way. A U.S. Treasury spokesperson declined comment on tariffs.A USTR spokesperson said the agency was continuing its review and was evaluating feedback received, nearly seven months after it closed public comments.Collections of U.S. tariffs on Chinese goods peaked at $49 billion in fiscal 2022, bringing the total amount collected from U.S. importers over four years to $182.9 billion, according to U.S. customs data.U.S. imports from China had nearly reached their 2018 peak in 2022, but are down 24% so far this year. ENDLESS ‘GROVELING’Hardliners who dominate China discussions within the U.S. Republican party took to social media memes to mock Yellen for appearing to bow to Chinese vice premier He Lifeng at the start of a meeting. Firebrand Republican Senator Josh Hawley said in a tweet that such “embarrassing groveling to China is a historic mistake.”Republican presidential hopefuls have adopted confrontational rhetoric with respect to China, which they see as the nation’s top geopolitical foe.Florida Governor Ron DeSantis and former UN Ambassador Nikki Haley have laid out the most specific plans so far to confront China on trade, and advocate revoking China’s permanent normal trade relations status, a legal designation granted by the U.S. that lowers trade barriers with specific nations.Haley has said she would push Congress to revoke China’s trade status until China curbs its alleged role in the fentanyl trade. China is a major producer of chemicals required to create fentanyl, which is frequently smuggled over the U.S.-Mexico border.Former President Donald Trump, who leads the Republican field with DeSantis a distant second, told Reuters that he would give China 48 hours to remove what sources say is Chinese spy capability on the island of Cuba 90 miles off the U.S. coast. If China fails to comply, his administration would impose new tariffs.(This story has been refiled to add missing words in paragraph 4) More