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Barclays must raise its game with Coco execution

By Will Caiger-Smith
30 Jul 2013

Barclays has made no bones about its commitment to the Coco market, which it now aims to access again as part of its capital raising plan. But its past deals have had a rough ride in the secondary market and another one may be challenging. After Tuesday’s results, potential buyers need the promise of perfect execution this time.

The good news out of Tuesday’s figures is that a solid performance at Barclays' investment bank buoyed group results. This is, after all, the investment bank that a year ago was at the centre of the Libor rigging scandal — the investment bank that now has its core values of "Respect, Integrity, Service, Excellence and Stewardship" emblazoned in glowing blue letters in its foyer.

But £12.8bn is one hell of a capital hole, and £6bn of capital reductions — £2bn in misconduct charges and a further £4bn levied by the PRA — is a nasty surprise for shareholders.

Antony Jenkins, chief executive, said the charges would “reduce uncertainty for shareholders around these conduct risks” but stopped short of promising the problems were over. That contrasted with the news that the UK Serious Fraud Office had won £2m of extra funding to pursue a criminal investigation into the bank over its emergency fundraising in the Gulf in 2008.

The optimistic shareholder or potential Coco buyer might look at these results and believe that Barclays’ closet is empty of skeletons — but would they have any real reason to, given the bank’s performance over the past 12 months?

Barclays’ new “Transform” programme is important. It might be enough to convince those dithering on the sidelines that the Coco is a good buy. And despite the protestations of plenty of more traditional investors, the bank is unlikely to fall flat on its face if it prints another permanent write-down deal like the two it has already issued.

But no amount of PR guff is going to convince the cynics to buy it. And those investors that do support the new Coco would be well within their rights to demand a very juicy coupon.

In its favour, Barclays has already plotted two points on its Coco curve. Those deals didn’t settle easily in the secondary markets though, which is a shame, given that Barclays has been one of the burgeoning asset class’s most outspoken champions. They did trade up on news of the capital increase, however, and continued to do so as the details emerged on Tuesday.

The Coco investor base is still developing, and Barclays is rapidly becoming its biggest issuer. Plenty of market participants moaned about the execution of its previous Coco — it opened the last deal before the Easter weekend and executed it afterwards, and investors complained that the first one was oversized.

After the surprises in this quarter’s results, Barclays should stick to the spirit of its Transform programme and make sure there is no space for such complaints about the new Coco, rather than just looking for another window. The arrangers have no excuse, because the way they should approach the deal is lit up in the Barclays foyer: Respect, Integrity, Service, Excellence and Stewardship.

By Will Caiger-Smith
30 Jul 2013