· Leaving the leaks and lobbying aside, this is how grown-up banks respond to regulatory imperatives. Yes, deleveraging and balance sheet management have a part to play, but a regulator that stands firm in its view and a bank, that — even if disappointed — gets on with the job of raising equity, is how it is supposed to be. Europe, take note.
· Are there activities which make financial sense for institutions that are 40 times levered but don’t make sense for those 33 times levered? It appears so.
· Do such activities add more value than the costs of a system 40 times levered? Discuss.
· Cost of equity: Barclays devoted a whole slide in its original Transform presentation to a single equation: return on equity > cost of equity. Jenkins now hopes to get there in 2016, rather than 2015. Adding equity clearly hurts returns, but it should also make returns less volatile and thus reduce cost of equity (incidentally, something that Barclays doesn’t include in its benefits of the raise).
However, the Transform plan — and its heavy investment in staff re-education — could have just as important an effect on the cost of equity. Take a look at JP Morgan, for example, which on Tuesday didn’t admit or deny wrongdoing (something to do with Californian electricity) and paid half a billion dollars for the privilege. Or Deutsche Bank, which found a few more legal issues and reckoned they might take more than six hundred million dollars to clear up. Jenkins’ focus on culture might appear wishy-washy, but it has real value to shareholders as they think about cost of equity.
· It goes further than cost of equity, of course. A Go-To bank needs an investment case more robust than offering shareholders the over-under on the level of compensation owed to its customers.
· A refreshingly transparent approach to fees and, dare we say, setting them at a reasonable level. It’s usual for UK companies to push the fees disclosure to page 648 of a prospectus, which is usually published after the deal is announced. It’s also usual for the company, its board, advisers and underwriters to call the level of fees, be they 2% or 4%, “customary”. Barclays is paying a 1.7% headline underwriting fee. For sure, there’s probably not actually any tangible risk at a 35% Terp discount, but banks could be on the hook for 11 weeks — lengthy for a UK deal — and the company’s big shareholders will be getting 0.8% for sub-underwriting, a decent proportion of the economics.
· And finally, a pet bugbear: “Holding capital”. Capital is a liability, and we all know that banks don’t hold liabilities — they issue them and they hold assets. To say that a bank “holds capital” insinuates that it is tied up and unavailable for lending, when actually, all else being equal, the more capital is “held” the more assets will sit on the other side of the balance sheet. It’s a subtle way the anti-capital apologists make their rather dubious point (see point three, above). The Barclays board which allowed itself to be quoted in the deal press release as “holding capital” needs to change its mindset. Or its sub-editors.