BCS Barclays PLC

By Margot Patrick 

Barclays PLC came under further pressure to step up turnaround plans after activist investor Sherborne Investors said Monday it has taken a 5.2% stake in the bank.

Sherborne, founded by investor Edward Bramson, hasn't said if it plans to seek any changes at the British bank, whose share price has lagged behind rivals in part because of questions about its business strategy combining investment banking, credit cards, and retail and commercial banking. In previous investments in U.K. investment companies F&C Asset Management PLC and Electra Private Equity PLC, Sherborne successfully pushed for strategic changes and took board seats.

The entry of the activist comes at a sticky time for Barclays, more than two years into a restructuring that has yet to pay off. Barclays was one of the worst-performing European bank stocks last year, and some shareholders have questioned whether Chief Executive Jes Staley has hit on the right strategy. In February, Mr. Staley said his turnaround plan is about to pay off and that the return of volatility to markets was helping boost trading revenue at Barclays's investment bank.

Mr. Staley also pledged to double the bank's dividend, helping lift the stock 4.5% between the Feb. 21 announcement and last Friday. The shares rose another 4% Monday on news of the Sherborne stake.

Sherborne's stake building started late last year and is a relatively rare example of an activist investor targeting a bank. The banking sector scares off many activists since regulators have a much greater say over business plans and capital levels than in other industries. Even so, last year, Swiss hedge fund RBR Capital Advisors AG took a crack at getting Credit Suisse Group AG to break itself up -- with no success so far -- while earlier attempts by Monaco-based Knight Vinke Asset Management to bring about changes at HSBC Holdings PLC and UBS Group AG largely failed. A 2007 effort by London hedge fund TCI Fund Management to get Dutch bank ABN Amro to shed operations was a relative success but led to the disastrous acquisition of the Dutch bank by Royal Bank of Scotland Group PLC and two other banks. The takeover was good for ABN shareholders, including TCI, but RBS had to be bailed out a year later by the British government.

People familiar with the matter said Barclays and Sherborne officials met after the bank's full-year results in February but that there hasn't been any contact yet with Barclays board. The people said Sherborne hasn't indicated any specific changes it might seek. Over the course of an investment, Sherborne typically aims to make at least double its initial investment -- some GBP1.8 billion ($2.53 billion) in the case of Barclays.

Barclays said Monday it will "continue to engage with Sherborne" but didn't give any details. Any activist action against the bank would add to a host a pressures: In addition to the continuing restructuring, Barclays is defending itself against U.K. criminal charges over a 2008 emergency fundraising from Middle Eastern investors and is in the process of legally separating its retail and investment banks to meet new, so-called ringfencing rules. The bank is also waiting to hear if any action will be taken by U.K. regulators over attempts by Mr. Staley last year to identify a whistleblower who sent letters criticizing an executive he hired.

Over its three-year investment in F&C, Sherborne pressured the company to reduce its debt and refocus its strategy. When the company resisted, it rallied other shareholders and installed Mr. Bramson as chairman. Sherborne doubled its money by the time it cashed out in 2013.

Sherborne hasn't always forced changes on targets, though. In 2013 it invested in private-equity firm 3i Group PLC, then cashed out later that year at a double-digit profit saying it saw better opportunities elsewhere.

In Barclays, Sherborne made around one-third of the GBP1.8 billion stock-and-derivative investment through a company it listed in Guernsey in July. The Guernsey company's stated aim was to find a single corporate target to invest in and make "a significant capital return."

It started building the Barclays stake last year, the people familiar with the matter said. At the February meeting, Barclays met with Sherborne as one of its top-five shareholders. At the time, it was just below the 5% stake that triggered the disclosure Monday under U.K. listing rules.

Write to Margot Patrick at margot.patrick@wsj.com

(END) Dow Jones Newswires

March 19, 2018 13:31 ET (17:31 GMT)

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