The Great Debate UK
The legendary financier, JP Morgan, was said to have made his money by “selling too soon”. Some say that is exactly what Sheikh Mansour Bin Zayed Al Nahyan of Abu Dhabi has done by selling a chunk of his stake in Barclays. Other sovereign wealth funds must wish they had the same dilemma.
The Sheikh’s sale of the convertible notes that he bought as recently as November as part of a “strategic” partnership — for a 1.5 billion pound profit — has taken Barclays by surprise.
However, this sort of thing is not uncommon right now. Just look at the way Western banks are selling their stakes in Chinese financial institutions.
The Sheikh has endured a roller-coaster ride. Barclays shares plunged by almost 80 percent in the three months after he, and neighbouring Qatar, agreed to invest.
That made them look as foolish as other sovereign wealth funds that had rescued western banks and lost their shirts in the process. Given the sharp bounce in the shares since then, it is no wonder that the Sheikh has taken his profit with a sigh of relief.
The Sheikh also plans to sell down bonds with a coupon of 14 percent, but to hold on to warrants (exercisable at 198 pence versus today’s 275 pence) over around 6 percent of Barclays fully-diluted share capital.
The Qataris, who invested 2.3 billion pounds alongside the Sheikh, Singapore’s state investor Temasek, which bought in at much higher levels, and other foreign investors must be considering whether to take profits (or cut their losses) too.
Temasek is heavily skewed to banks, something that Chip Goodyear, the new chief executive, may want to address. Barclays is in a stronger position than RBS and Lloyds, which both survive thanks to extensive state support: it is still profitable, it will pay a dividend this year and its capital markets arm is doing brisk business in volatile markets.
Moreover, there is some technical support for the bank’s share price because the conversion from notes to shares at month-end will increase the bank’s weighting in the FTSE 100 index from 2.0 percent to 2.6 percent.
However, the capital markets boom is unlikely to last. Much of Barclays’ strength is already priced in to the shares, which are trading above book value. Moreover, the revelation of the details of Britain’s stress tests last week showed that the assumptions used were not that pessimistic.
The true cost of the recession has not yet hit the bank. Even if the shares rise further, there are less stressful ways for the Sheikh to make money — especially if he wants to sleep at night.