Life may have just got more exciting for the bosses of Barclays – and not in a good way. Last week the bank revealed that Edward Bramson – a US-based investor who admits that some people would describe him as “pond scum” – had notched up a 5.2% shareholding, making him Barclays’ fourth-biggest investor. The disclosure was required once Bramson passed the 5% mark.
Bramson is not just any shareholder. He is an example of the aggressive activist investors that are buying stakes in UK companies with the aim of shaking things up and extracting returns. Barclays welcomed Bramson to its shareholder list but the greeting was no doubt made through gritted teeth. Bramson’s record of dogged agitation suggests Barclays’ bosses could now be in for a hard time.
Bramson has bought stakes in a series of British companies in the past 15 years and has reaped returns averaging 22.8% a year. He typically does so by buying a sizeable stake, demanding a seat on the board and then pushing for cost cuts, payouts to shareholders and other changes that boost returns.
Barclays wakes up to find a bull called Bramson in the shop
Bramson is based in New York, where he operates from an office on the 32nd floor of a midtown Manhattan block looking out at the Chrysler Building and the East river. But though his style is transatlantic, Bramson was born and grew up in England. His mother was British and his father American.
He moved to New York in 1975, aged 24, to get away from Britain when it was in the doldrums and run by a Labour government he saw as “dirigiste”. Bramson got into private equity and started his own firm in 1977. Things have not always gone his way: in 1987 he lost $60m after buying Ampex, a US maker of recording equipment. More recently, Sherborne’s stake in fitness equipment firm Nautilus also lost money.
In 2003 he abandoned private equity for activism and launched Sherborne Investors, whose first investment was 4imprint, a promotions company. Sherborne describes itself as a “turnaround investment firm”. Other more blunt descriptions for activist investors like Bramson include “corporate raider” and “asset stripper”.
In a rare interview in 2015, Bramson said he had been called “pond scum” but that big investors in his fund, including Aviva and BlackRock, saw things differently. “All those people know what we do. It is not a secret. They are the largest investing institutions in the UK or in the world. They don’t think it’s anathema,” he told Bloomberg Markets magazine.
If a company resists, he enlists the support of other large shareholders that are sometimes investors in Sherborne, which supply it with money and agree to the fund taking up to 25% of the gains. Bramson raised £700m in July for his next investment. It was Sherborne’s biggest fundraising yet, suggesting he had something significant in mind. The prospectus said Sherborne would find an undervalued company with “operational deficiencies” and that its investment would not be passive.
Barclays has, therefore, been warned. Its chief executive, Jes Staley, has already sold Barclays’ African business, got out of European retail banking and set the bank up to cut branches as customers go online. But investors have not been impressed: its market value languishes well below its assets and the valuations of other European banks. The shares, 250p three years ago, are currently changing hands at 203p.
The most likely target for Bramson’s shake-up is Barclays’ investment bank, whose status has swung from prized possession to expensive underperformer. What he has in mind remains to be seen. Bramson contacted Barclays after the bank’s annual results on 22 February to let the bank know he was building a stake. He and his partner at Sherborne, Stephen Welker, met Barclays’ head of investor relations but there is no meeting planned as yet with Staley.
Bramson’s style is to sit tight and work out his demands. Unlike other US activists such as Carl Icahn or Eric Knight, who agitated at HSBC a decade ago, Bramson does not use the media to conduct a campaign against the company’s management.
Activist investor plans shake-up at Barclays after building 5% share
He may be publicity-shy but that does not stop him from being highly aggressive. At fund management group F&C he built a 20% stake, ousted the chairman in 2011 and spent more than two years pushing for cost cuts and a revamped investment strategy.
At Electra, Bramson bought a 30% stake in 2013 and worked for almost two years to install himself and another director chosen by him on the board. He installed himself as the stand-in chief executive, standing down in December 2017.
But Barclays – currently valued at £34bn – will be a more difficult nut to crack than Bramson’s other investments. A 5% shareholding gives him far less influence than he had at F&C or Electra, whose smaller size let him buy big stakes.
Sherborne has not previously invested in banks, which are strictly regulated. The Bank of England is unlikely to want him calling the shots at Barclays, which is regarded as systemically important to the financial system.
But Joseph Dickerson, an analyst at stockbroker Jefferies, said that after placing such a big bet on Barclays, Bramson would not sit back. “Sherborne’s managing directors have at best limited experience in banks investing,” Dickerson said. “Investors should take note that, however out of character, [Sherborne’s] investment in Barclays consumes nearly all of its capital and so is clearly a massive active bet.”