Who’s going to win, Antonio or Antony?
Barclays’ chief executive, Antony Jenkins, has just announced he will be passing the cap to institutional investors, by announcing a 5.8 billion pound rights issue. Following some upbeat interim results from rival Lloyds Banking Group on Thurday, the question is now whether its chief executive , Antonio Horta-Osorio, will jump the queue and empty the well of investor demand.
Lloyds’ numbers show the bank beginning to motor. Costs and impairments in the first half of 2013 were down 6 percent and 43 percent, respectively, allowing underlying profit to soar 178 percent. The bank managed to grow revenue by 2 percent, offering encouraging evidence that the British economy to which Lloyds is umbilically linked is beginning to recover.
The British regulator has been careful not to allow Lloyds, or its state-owned peer Royal Bank of Scotland, to pay dividends before it is cleaned up. But Lloyds looks in good shape. Although a mis-selling redress remains an irritant - the bank has now paid out 5.6 billion pounds of a recently beefed-up 7.3 billion pound fund - it has reached targets on net-interest margins and non-core asset shrinkage way ahead of schedule. Its 10 percent core Tier 1 ratio on a Basel III basis in December looks strong enough.
At 74 pence, Lloyds’ shares now trade where the state bought its 39 percent stake in 2009 - counting in fees paid by bank to government, it’s almost 10 pence above the in-price. Moreover, the bank would offer a dividend yield of 4.9 percent if it moved up to a not-inconceivable 50 percent payout ratio and made the 7.2 pence in earnings per share Deutsche Bank forecasts in 2015.
The only cloud from a government perspective is Barclays’ own cash call, which could drain demand from investors keen to buy into British bank stocks. But given that Lloyds looks ready to go, it would seem easy for its investment bankers to organize a share placing, which could be done in hours. That would get its dominant shareholder’s stake sale off to a flying start - and leave rival Barclays cursing the government once again.
George Hay is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
