During the current period of equity market volatility, many share prices have received a battering. Investors are jittery and the corporate reputations of listed companies have become fragile under the accumulating pressure of global financial fears, spurred by the US sub-prime lending crisis.
It is a bad time for bad news to appear. To be faced by negative stories in quick succession presents the potential for severe reputational damage. Such has been the unfortunate lot for FTSE-100 company Barclays in recent weeks.
At the end of August the bank was hit by the unexplained resignation of Edward Cahill, Barclays Capital’s head of European collateralised debt obligations. His departure came after structured investment vehicle funds, so-called ‘SIV-lites’, incurred losses and sparked feverish speculation that the bank had exposure to a large amount of unsecured debt. The City rumour mill crackled with unsubstantiated stories that Cahill was a latter-day Nick Leeson, whose rogue trading activities famously brought about the downfall of Barings Bank, erstwhile pillar of the financial establishment.
Bank of England
To compound matters, just a few days later Barclays was forced to borrow £1.6bn from the Bank of England’s emergency lending fund – at a punitive lending rate of 6.75 per cent. Barclays attributed the move to a technical breakdown rather than liquidity problems but on top of the other bad news it has had to deal with it made the company appear error-prone and generated negative media coverage.
From a high of 790p in February this year, Barclays’ share price plunged 28 per cent to 613.5p by the end of August, declining 12.2 per cent over the course of August alone and briefly languishing below 600p. There are concerns that the fall may have jeopardised Barclays’ high-profile bid for ABN Amro, in which shares comprise the majority of the deal. A rival consortium led by Royal Bank of Scotland is also stalking the Dutch bank.
‘The jury is out as to whether Barclays was the victim of a series of coincidences, but it is looking a bit accident-prone,’ says Chatsworth Communications director of financial markets Nick Murray-Leslie (r). ‘Its challenge is to steady its investors’ nerve in a jittery market. If it suffers another slip it could easily spell the end of the ABN Amro bid.’
Evening Standard City commentator and PRWeek columnist Anthony Hilton accused Barclays of ‘arrogantly inept PR’, citing its lack of speed in addressing Cahill’s exit and wondering whether the extent of its SIV-lite losses might be higher than indicated. Clearly these are difficult times for PR and IR teams at Barclays, which declined to comment in relation to this article.
However, after a shaky start there is evidence they have dampened down some speculation and have succeeded in getting Barclays’ point of view across in the media. Key to this was fielding highly respected CEO of investment banking and investment markets Bob Diamond for carefully selected media interviews.
In an interview with The Sunday Times on 2 September, Diamond dismissed speculation that Barclays might be forced to issue a profit warning. He said the fears over SIV-lites, Cahill’s exit and the Bank of England borrowing had been taken ‘far out of context’ and rubbished claims that the unsecured exposure ran into hundreds of millions of pounds. ‘We said that the conservative loss could be £75m,’ Diamond reiterated. ‘We do not like having to say things like that, but there were enough questions to make it important for us to make that statement.’
Gay Collins, managing director of financial agency Penrose, feels that overall Barclays has handled the negative stories well, particularly as it can be hard for companies to respond swiftly during the summer months when a lot of decision-makers are away. Bob Diamond engaging with the press was, argues Collins, the right move given the multitude of issues that had surrounded Barclays and the continuous speculation around the ABN Amro bid.
‘Bob Diamond’s interviews put Barclays back on the front foot, shifting the media agenda away from its issues and highlighting the broader picture,’ says Collins. ‘It’s interesting that commentators are now questioning whether the Bank of England’s lending arrangements need revisiting to remove uncertainty.’
Citigate Dewe Rogerson managing director Patrick Donovan agrees that Barclays acquitted itself well in a climate where the media was ‘baying for a Barings-style story’ and the high-profile bank was a convenient target.
‘They have a very talented comms team at BarCap (Barclays Capital),’ says Donovan. ‘Their strategy to put Bob Diamond in front of The Sunday Times worked well and drew a convincing line in the sand after he made clear there was no kind of black hole in Barclays’ accounts. The share price has responded accordingly.’
The bank will continue to be subject to intense media and analyst scrutiny, arguably attracting greater attention than some of its competitors so long as its takeover bid for ABN Amro remains a possibility. Indeed, Barclays was back in the news last Friday when it announced that it intended to underwrite another of its structured investment funds.
Amid the ongoing market turbulence and worries relating to investment instruments such as SIV-lites, the in-house communicators must stay alert.
Should any other unpalatable story involving Barclays break again soon, it might sound the death knell for Barclays’ current acquisition ambitions.