Although Bob Diamond’s tenure as CEO of Barclays (LSE: BARC) (NYSE: BCS.US) was a relatively short-lived affair, his impact is still being felt at the company.
Indeed, although he left the company under something of a cloud, to be replaced by a ‘steadier’ character in the form of Anthony Jenkins, many of Diamond’s ideas and strategies are sound and are, in fact, helping the company to turn the corner.
One such strategy is an exit from smaller overseas banking operations, with the company shutting down or shrinking operations in India, Pakistan and Russia in the last few years. Furthermore, it is now reviewing its focus on the UAE, with a view to selling its operations there.
Such a strategy is helpful to the business because not only does it raise capital, it also reduces the size of Barclays’ balance sheet. Evidence of its appeal can be seen in the fact that Lloyds recently announced that it planned to withdraw from up to 17 markets, taking its international presence to less than 10 countries by the end of next year.
The reason for Diamond’s strategy (and its continued adoption by the new CEO) is that the numbers simply do not add up. Small operations abroad create little profit, require substantial amounts of capital and direct management time and resources away from more lucrative markets.
So, although the management tenure of Bob Diamond remains tainted, not everything he undertook at Barclays was a failure. Indeed, it could be said that he was ‘ahead of the curve’ when it came to refocusing the bank on the areas that matter most: shrinking the balance sheet and redistributing capital in the meantime.
Of course, Barclays still has some way to go before it can be considered a successful business once more, with the recently announced rights issue another step on that journey. However, I believe that the bank is an appealing turnaround story, with shares currently trading on a price-to-earnings (P/E) ratio of just 8.2, which compares well to the wider banking sector and to the FTSE 100. They trade on P/Es of 16.8 and 15.2 respectively.
Furthermore, income-seeking investors such as me should be encouraged by the Barclays’ promise to pay out between 40% and 50% of earnings as dividends. This means that dividends per share are forecast to be around 11p in 2014, giving a yield of 3.8% at current prices.
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> Peter owns shares in Barclays.
