Barclays Activist Sherborne Puts Cap on Potential Stock Gains, Losses with Loan -- Update
28 Febbraio 2019 - 08:19PM
Dow Jones News
By Margot Patrick
LONDON -- Sherborne Investors, the activist firm pushing
Barclays PLC to shrink its investment bank, is financing around
half of its multibillion-dollar stake in the British bank with a
loan from Bank of America Corp.
Sherborne, headed by Edward Bramson, wants Barclays to focus on
consumer banking and has asked Barclays' shareholders to appoint
Mr. Bramson to the bank's board at a meeting in May. Last week,
Barclays' board recommended a vote against Mr. Bramson's
appointment, saying it remains confident in the lender's current
strategy combining investment banking, credit cards and U.K. retail
banking.
The fact that Sherbourne has financed some of its stake, and
limited both its upside and downside on the bet, could color
attempts to get other investors to support the campaign. Analysts
say Mr. Bramson faces a huge challenge to get on the board because
his message hasn't gained traction, and some Barclays shareholders
have already said they would vote against him.
"It would be highly unusual for someone with such a small
shareholding to be elected to the board of a company. But even if
he knows he's going to get voted down, achieving some degree of
support from the shareholder base will give him more currency in
terms of his argument," said John Cronin, a bank analyst at
Goodbody Stockbrokers.
Sherborne, in a Feb. 8 filing, said it bought part of its stake
with a $1.38 billion loan and put and call options from the lender
to cap its exposure. These protect against losses if the shares
fall below a particular level and limit potential gains. The
options expire between October and March 2021. People familiar with
the matter said Bank of America is the lender and counterparty on
the options. The securities filing and the Bank of America loan
were earlier reported by the Financial Times.
In the U.S. securities filing, which was made because
Sherborne's stake in the bank has risen above 5% to 5.5%, Sherborne
said it bought Barclays shares because it believes they are
undervalued. It said it would continue to discuss Barclays'
performance, capital structure, financial condition and strategic
direction with the bank's board and management, and could make
further proposals to the board's composition beyond the effort to
elect Mr. Bramson.
Sherborne in March 2018 first disclosed it held a 5.2% stake in
Barclays through shares and derivatives. Sherborne's Mr. Bramson
and Stephen Welker met last year with Barclays officials, including
Chief Executive Jes Staley and Chairman John McFarlane, to discuss
potential changes at the bank, but they haven't been able to find
common ground in their visions for the bank.
Mr. Staley and his management team, with the board's support,
want to improve returns at Barclays investment bank by expanding in
some areas, and consider it core to its strategy to have diverse
operations. Mr. Bramson in a December letter told investors in a
Sherborne fund that he believes the unit will keep dragging down
the bank's valuation without an overhaul.
Last week, Barclays countered Mr. Bramson's view by reporting a
better-than-expected performance by the unit in the fourth quarter.
Barclays and Sherborne are scheduled to meet again on March 12, Mr.
Staley said, while announcing last week's results. He said he
doesn't see the need for Mr. Bramson to join the board to share his
views.
Sherborne's loan from Bank of America is part of a financing
structure known as a funded equity collar. The structure involves a
bank making a loan to an investor to buy shares, with the shares as
collateral, and entering put and call options on the stock to cap
the investor's upside and downside.
In its filing, Sherborne said it purchased 943,949,089 shares in
Barclays for around $2.54 billion in all, with a bit less than half
paid for in cash from its funds and the rest through derivative
transactions.
Sherborne is aiming to make at least double its investment in
the bank by bringing about changes, according to people familiar
with the matter.
Write to Margot Patrick at margot.patrick@wsj.com
(END) Dow Jones Newswires
February 28, 2019 14:04 ET (19:04 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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