Has Barclays PLC Got Its Priorities Right For 2014?


Ten years. That’s how long it could take for the public to trust Barclays (LSE: BARC) (NYSE: BCS.US) according to its own chief executive, Antony Jenkins.

“Trust is a very easy thing to lose, and a very hard thing to win back,” Jenkins told a group of East London schoolchildren last week. “In my view it will take several years – probably five to ten – to rebuild trust in Barclays.”

As it happens, Jenkins owes his status as top dog at the company to the lack of trust in Barclays. He filled the role vacated by former incumbent Bob Diamond, who stepped down in the wake of the LIBOR-rigging scandal in 2012. So he may feel he’s on firm ground.

However, I do wonder what investors should make of his comments. Ten years is a long time in economics and the markets, and I’d bet good money on another crash, if not a crisis, coming along before 2024. The inevitable stresses would undoubtedly test people’s faith in Barclays once again – regardless of any PR initiatives launched in the interim. 

Indeed, investors in Barclays might wonder whether rebuilding trust or repairing its operations should be a top priority, given we’ve already seen five years of banker castigation.

Bankers: they’re all the same

I’m sure Jenkins would say rebuilding trust is a critical part of ensuring that Barclays can thrive in the future. He says by 2018 he wants to reverse the statistic that currently sees more people distrusting his bank than trusting it.

Yet would rebuilding trust in Barclays really boost its business? Has there been a mass exodus of consumers from Barclays’ branches? If so, then I haven’t seen it.

Rival banks are either too-tiny to make a difference or else they’re as distrusted as Barclays is by the wider public. Most of the big UK banks were implicated in the LIBOR or PPI scandals, or in one of the others still rumbling on. Given that even the supposedly whiter-than-white Co-Operative bank nearly collapsed, I think customers could be forgiven for shrugging their shoulders in indifference if asked to trust one big bank more than another.

As for Barclays’ professional counterparts in investment banking – they’re cut from the same cloth. Non-financial companies may well distrust bankers more, but they still require their services. In a world where the leader Goldman Sachs is routinely described as a blood-sucking squid, I don’t see that Barclays uniquely needs to revamp its image.

Socially useless – so what?

Jenkins admits trust is an industry-wide issue. He concedes he can only aim to improve the public’s trust of Barclays, but he hopes this will rebuild a wider trust in banking.

I am definitely not saying that bankers don’t deserve the criticism they’ve received over the past few years. The culture of profits at all costs – including cost to the company itself –clearly allowed all kinds of nefarious to take place. It’s hard not to read the transcripts of massively well-paid traders congratulating themselves on their activities in the LIBOR market without feeling disgust.

However at the end of the day banks exist to make a profit, not to be trusted by the public, nor to provide useful services to society.

I appreciate that may sound inflammatory but hear me out.

Countless businesses, from disposable high street fashion chains to fast food joints to tobacco companies to the makers of schlock reality TV make money doing things we can do without. They find ways to prise our wallets open, and to encourage us to spend money on things that aren’t good for us. Personally I do all I can to resist their charms, but that’s different from describing them as toxic, or their activities as evil.

Similarly, banks will always profit from their customers. It’s up to regulators – and to the public – to decide how they should be allowed to do so. A bank that dismembers itself cauterizing the wounds of yesteryear in the pursuit of a nebulous concept like trust surely risks becoming uncompetitive or irrelevant, if its rivals take less radical steps. 

Don’t trust anyone in a suit

As a citizen, I hope politicians and regulators keep banks on a far tighter leash than in the old days. But as an investor in bank shares, I think the top priority of a bank’s management should be creating the most profitable bank it can.

Clearly that should be done within both the spirit and the letter of the law. But it should equally be done with an eye to the long-term potential gains or problems being stored up for the bank itself. Self-preservation should not need to be mandated by regulators – it should be insisted on by shareholders. (I agree with those who say that old-fashioned partnership-based investment banks would never have faced the trouble that listed ones did in 2008 and 2009.)

But as for the wider trust issue, count me as a sceptic. I think the public will always see something dubious about making money from money. Banks will always need to do nasty things like charge interest on loans, repossess homes and businesses (something they’ve not actually done much of in this crisis), and look to profit as a middleman.

Let’s keep our demands for trust for doctors, policemen and women, and High Court judges. For bankers, cautious tolerance is about the most we should aim for.

In any event, investors who were burned as big banks went bust or were bailed out will also take time to regain their confidence in the banking profession.

While I think that culture is critical in banking, I also think investors can learn a lot from studying the numbers to see how a bank makes its money - and where it's taking risks. By learning how to understand banks for yourself, you put yourself in a stronger position when it comes to finding the best companies - and avoiding the landmines - in the sector.

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> Owain owns shares in Barclays.