Comment: Fire–fighting remains the priority for Barclays
IT NEVER rains but it pours, especially during a British summer. Yesterday’s strong interim results from Barclays were clouded by news that the Financial Services Authority (FSA) has opened yet another investigation into the bank’s affairs.
The allegation is that Barclays failed to make a proper disclosure of fees paid to consultants when it raised £5 billion from Qatar and Abu Dhabi in 2008, to avoid a bail-out from the Treasury.
Compared with the Libor rate-fixing scandal, this is small beer. It smacks of the pique still felt in Treasury circles that Barclays managed to escape its clutches during the credit crunch, unlike RBS and Lloyds. Mind you, one of these consultants was a member of the Abu Dhabi royal family, who pocketed a fee of £110 million.
Despite these difficulties, Barclays’ first-half results are good and most analysts recommend a “buy”. Underlying profits before tax are up a cheery 13 per cent, to £4.2bn. That beat expectations and boosted the share price. Most of the gains come from the investment arm, home of the Libor scandal. It fared better than many rivals in a second quarter made difficult by the euro crisis. Marcus Agius, still chairman until he finds someone to replace chief executive Bob Diamond, suggested Barclays would resist any notion of divorcing its wayward trading unit.
It’s just a pity, then, that own goals such as the Libor fine and mis-selling charges helped reduce Barclays’ statutory profit by 71 per cent.
In straight banking terms, there are a few worries lurking in the accounts. Barclays still holds around £5bn of risky Spanish and Italian government bonds. Plus it has funded around £50bn of retail and corporate loans in Italy, Portugal and Spain at a time when those economies are hardly strong.
Overall, these results prove there is life after Diamond, even if Barclays no longer achieves his ambition of becoming a British Goldman Sachs. Yet, whoever replaces him will find themselves fire-fighting for some time.
Markets are liking what they hear from Draghi
Stock markets were buoyed on Thursday and yesterday after Mario Draghi, governor of the European Central Bank, announced he would do “whatever it takes” to save the euro.
This is code for the ECB buying eurobonds to stabilise the market.
Predictably, Draghi’s comments drew criticism from the Bundesbank but gave the markets hope. Yields on wobbly Mediterranean sovereign bonds went down. This was followed by more (relatively) good news: US GDP growth in the second quarter was 1.5 per cent. This is down on Q2 but still in positive territory. Wall Street put on early gains.
I hate to rain on the party, but I’m a tad sceptical.
Other US data this week was less encouraging.
Budget deadlock in Congress is causing business and consumer confidence in America to crater. In Europe, I detect a shift in German sentiment towards letting Greece exit the euro. And while the depth of the UK’s double-dip recession is exaggerated, the economy is certainly stagnating. The time is over for coded messages. We need action.
Mixed views on troubles for £65bn Facebook
Shares in Facebook, floated in May at £65bn, hit a record low yesterday after the company reported a loss of £100 million for the second quarter. That puts the value nearer £40bn.
Even at this price, Facebook’s business model is still more anticipation than cash cow. Extracting advertising revenues remains Facebook’s Achilles Heel. Ad views are lagging user growth. Internal costs are also way up, suggesting management is taking its eye off the ball.
On the positive side, the number of folk using their mobile phone or iPad to access Facebook has surged 67 per cent in only 12 months, to over half a billion – and mobile rather than desktop is where the future lies. The company is desperately re-jigging the software application to make accessing ads “on the go” far easier.
Analysts think Facebook is probably a trifle under-valued and most are recommending a “buy”. Speculation abounds that Facebook is planning its own smartphone. A face-off with Apple? Surely even Mark Zuckerberg, the company’s founder and chief geek, is not that arrogant.
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Weather for Edinburgh
Tuesday 21 May 2013
Temperature: 7 C to 17 C
Wind Speed: 13 mph
Wind direction: North west
Temperature: 3 C to 12 C
Wind Speed: 23 mph
Wind direction: West