Barclays (BARC.L) is looking for a valuation cure. Chief Executive C. S. Venkatakrishnan and colleagues at the UK lender have explored raising capital to fund an M&A deal in the wealth or asset management sectors; shrinking the investment bank’s risk-weighted assets by 25%; and a milder set of investment bank tweaks. If they opt for the latter, it won’t help a valuation that languishes at 0.4 times tangible book value.
Venkatakrishnan has logical reasons for conservatism. The bank’s share price has fallen 25% since February, meaning investors might spurn a capital raise. Cutting into the investment bank and reallocating to the more stable retail operations may look enticing but is hard to do without upending short-term returns.
Still, the currently favoured suggestion of cutting less profitable investment bank clients sounds equally tricky, and might only shave at most a tenth off Barclays’ 219 billion pounds of corporate and investment bank risk-weighted assets. The common theme linking Barclays and Deutsche Bank (DBKGn.DE) is that this sort of business, often seen as more volatile, equates to well over half of RWAs. At Credit Suisse-inflated UBS (UBSG.S), which trades near book value, investment bank RWAs are 25%. Even getting Barclays’ corporate and investment RWAs back to 50% of the total would involve shrinking them by over a fifth. That might be more than Venkatakrishnan is willing to stomach. (By Aimee Donnellan)
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