Barclays rallies as Sherborne takes 5% stake

Barclays rallied on Monday as it emerged that Edward Bramson's activist investment fund, Sherborne Investors, has acquired 5.2% of the voting rights in the bank.

Sherborne, which describes itself as a turnaround investment firm, said it has invested £580m of the company's capital in Barclays shares and derivatives.

"Sherborne Investors has advised the company that its turnaround assumptions indicate a potential return on the investment in line with Sherborne Investors' customary return objectives," it said.

Meanwhile, Barclays said in a statement: "As with all its shareholders, Barclays will continue to engage with Sherborne, and welcomes them as a shareholder."

Russ Mould, investment director at AJ Bell, said: "Sherborne has built a formidable reputation for squeezing improved financial and operational performance from the companies in which it invests and Edward Bramson clearly feels that Barclays shares are going cheap, given the prevailing discount to the book, or net asset value. The question now is what the activist investor thinks Barclays should be doing differently and how he intends to get those views across to the bank’s boss, Jes Staley."

Mould pointed out that Sherborne has waged several campaigns to improve corporate and share price performance, notably at 3i and the Electra Private Equity investment trust, which returned £1.5bn in cash to investors last year. It also had success with Elementis, Spirent and F&C Asset Management.

"It is therefore little surprise to see Barclays’ shares respond enthusiastically to Sherborne’s appearance on the bank’s shareholder register, especially as the shares do look cheap, especially on an asset value basis.

"This suggests investors feel the bank is underperforming relative to its potential so it will be interesting to see how deeply Mr Bramson and his colleagues delve into the classic activist investor playbook and how Barclays responds, especially as the bank already has a lot on its plate, with the whistle-blowing case involving chief executive Jes Staley, the Serious Fraud Office investigation into 2008’s Qatar-backed fundraising and an ongoing fight with the US Department of Justice over allegations of mis-selling mortgage-backed securities."

Mould said it's unlikely that Bramson can wield much influence over the latter two issues but he may feel that there are other operational and strategic changes which could be made to the potential benefit of the bank’s financial performance and therefore ultimately its shareholders.

At 1135 GMT, the shares were up 3.8% to 217.50p.