OMGI: Barclays to see more upside despite fraud charges

Old Mutual Global Investors believes there is “a lot of upside” to come from Barclays shares, despite the Serious Fraud Office charges.

Portfolio Adviser

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Barclays’ shares experienced a minor drop today after the SFO issued charges against four individuals for conspiracy to commit fraud and the provision of unlawful financial assistance contrary to the Companies Act 1985.

The UK bank is one of the largest holdings in the Old Mutual UK Alpha fund run by Richard Buxton (3.8%), but the fund group is unfazed at the development because the fraud allegations had been public for a long time.

Robert James, senior UK equity analyst at Old Mutual Global Investors, said: “Barclays has been a bit accident prone in the past few years, but I don’t think that detracts from the fundamental issue that Barclays shares are extremely cheap relative to other banks across Europe.

“On a price-to-book basis it trades right at the very bottom of the pile despite the fact the main core businesses of the bank are covering their cost of capital.

“There is a big discount in the share price for some of these issues and as these get resolved there is a lot of upside to come from Barclays, so we are hanging on.”

Elsewhere, Laith Khalaf, senior analyst at Hargreaves Lansdown, said the muted reaction highlighted the fact that the SFO action was largely priced in, and more widely reflected the “misconduct discount” which applies to the banking sector.

He added: “Litigation, fines and compensation payments have sadly become part and parcel of the banking world, and while many of the alleged offences took place a long time ago, the costs and reputational damage are still very much a live issue.”

The SFO charges relate to Barclays’ capital raising arrangements with Qatar Holding LLC and Challenger Universal Ltd in June and October 2008, and a $3bn loan facility made available to the State of Qatar acting through the Ministry of Economy and Finance in November 2008.

The capital raising helped Barclays avoid a state bailout during the financial crisis.

Former chief executive, John Varley, and former executive chairman of investment banking and investment management in the middle east and north Africa, Roger Jenkins, have been charged in relation to the October 2008 capital raising and unlawful financial assistance contrary to s151 of the Companies Act 1985.

Meanwhile, Varley and Jenkins, as well as Thomas Kalaris, former chief executive of Barclays Wealth and Investment Management, and Richard Boath, former European head of Financial Institutions Group, have been charged with conspiracy to commit fraud in relation to the June 2008 capital raising.

The Financial Conduct Authority said in a statement: “We are pleased that this matter, which led to the stay of our own case, is now in the public domain. We welcome a fair and transparent hearing on the basis of the charges set out today by the SFO.

“We work closely with the SFO across a range of matters, in pursuit of our distinct objectives.”

The defendants will appear before Westminster Magistrates’ Court at 2pm on 3 July.

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