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Money managers under the microscope
Utilities vs banks: The evidence
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Alpesh Patel caused quite a stir on Britain’s Radio 4 this morning. The CEO of boutique investment house Praefinium Partners argued that Bob Diamond was on “a suicide mission to bring down capitalism”. No word yet from the Barclays CEO on that one.
Maybe that was just the line his PRs had promised to the BBC producers to get him on air, though, and there is more logic to Patel’s more substantial point about value creation in the banking sector in relation to bonuses and pay.
“What concerns me is higher salaries for what? In 14 years they have managed to add absolutely zero to the share price of Barclays… you’d think someone in banking would know which direction a share price is supposed to go in.”
Perhaps Patel’s most enticing comment was to suggest that utilities CEOs would make better banking executives, saying that Diamond should call on BG Group’s boss Frank Chapman to step in “to run [the] business properly and help those share prices go in the right direction because it helps pensioners and it helps consumers who might be shareholders.”
So just how well are those utilities chiefs doing against the.. err… morally-complex banking execs? One of our graphics gurus has knocked up the below to show how total returns match up in a few sectors. Draw your own conclusions.
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So from 1995 until 2006 Banks out preformed Utilities.
That’s 11 years.
From 2007 till 2010 Utilities outperformed Banks.
That’s 4 years.
From 1987 to 1996 they appear from your graph to have performed the same
That’s 9 Years.
So over 20 years Utilities have performed better for 20 percent of the time.
That leaves 80 percent that they didn’t
Did you write a similar article around 2001 or 2002 showing that Utilities underperformed.
No.. well maybe. I’d have to check.
But I think we we’re offering some evidence on the issues Patel raised without endorsing them — we posted the chart to allow readers to draw their own conclusions. He probably does have a point about value creation vs pay, but his point about utilities CEOs making better bankers is clearly more provocative than practical. That said, it would be kinda fun to see what Bob Diamond would do with BG Group…