By Margot Patrick
Jes Staley runs one of the last full-service banks left in Europe that competes with Wall Street. The way the 62-year-old American banker sees it, his restructuring of U.K.-based Barclays PLC has primed it to take on the likes of Goldman Sachs Group Inc. and Morgan Stanley.
British-born investor Edward Bramson couldn't agree less, and his New York firm has bought a sizable stake in Barclays. He is trying to force the bank to scale back its Wall Street ambitions, to become a consumer and commercial lender with smaller investment-banking operations.
So far, Mr. Staley, the chief executive, is having none of it. "He wants us to retreat into a foxhole? He should go back to Connecticut," Mr. Staley has told colleagues, referring to the state where Mr. Bramson has a home and raises horses.
The fight over the future of Barclays will help determine whether any of Europe's banks can retain global ambitions.
For centuries, the U.K. was synonymous with international banking, and London was the first stop for companies and governments looking to raise money. Then its banks ventured overseas to grab a greater share of lending and trading, bringing some of them close to death during the financial crisis a decade ago.
Today, U.S. banks dominate fundraising and trading, buoyed by healthier balance sheets and robust American capital markets.
Mr. Staley has a vision for Barclays, which absorbed much of Lehman Brothers after its collapse. He wants it to become a compact version of JPMorgan Chase & Co. -- the bank where he spent more than three decades of his career.
Making that happen hasn't been easy. The bank's share of global investment-banking revenue has risen a couple of notches, but returns on capital for the unit are below targets and the stock price has declined. Mr. Staley recently forced out the head of the investment bank and took the reins himself.
Mr. Staley said last week the bank has no intention of changing course. "We like the progress we're making in the corporate and investment bank....And we're going to continue with the strategy we set out three years ago."
By refusing to retreat, Mr. Staley is going against the grain in Europe. Stock valuations rose at UBS Group AG and Credit Suisse Group AG after they decided to narrow their focus several years ago.
Mr. Bramson's investment firm, Sherborne Investors, in a letter to Barclay's shareholders in early April, pressed its case for a strategic reversal. It argued that in the post-financial-crisis world only the biggest American banks are in a position to offer the full suite of investment-banking products.
"We believe that the current strategy is untenable in the long run," the letter said.
Mr. Bramson, 68, has demanded a seat on Barclays's board of directors. Shareholders are scheduled to vote on that resolution on Thursday. While few Barclays shareholders have said they would vote for him, many have expressed frustration with the share price.
Mr. Bramson has succeeded before in getting his nominees elected to boards that have dismissed his calls for change. In its recent letter to Barclays shareholders, Sherborne said Mr. Bramson has "significant insight" to contribute and could be a stabilizing influence on the bank.
In its own letter to shareholders in April, the Barclays board said it strongly opposes him joining, calling his style "disruptive and uncollaborative."
There have been three meetings between Messrs. Staley and Bramson and their respective teams. All have been cordial, but none have led to any action. "We come, we give the briefing and we get no feedback," said one person in the Barclays camp.
In a meeting last spring, Barclays board member Crawford Gillies told Mr. Bramson that the bank's first-half earnings would be strong enough to quell any strategy doubts, according to a person familiar with the discussion. The market won't care, Mr. Bramson replied.
Barclays beat analysts' estimates for that period, but its shares continued to slide, as Mr. Bramson had predicted.
Barclays says other factors are weighing on its share price, such as Britain's planned departure from the European Union and persistently low interest rates that hamper returns across the banking industry.
Last September, Mr. Bramson wrote to the Barclays board asking for a seat. A meeting with Mr. Bramson in November left Mr. Staley frustrated that Mr. Bramson was creating uncertainty around the Barclays stock but had said little about how he wanted to change Barclays, according to one person familiar with the discussion.
What should we be doing differently? Mr. Staley asked at one point, holding up his hands, according to the person familiar with the discussion. Mr. Bramson didn't reply. Shortly after the meeting, the chairman told Mr. Bramson he wasn't wanted on the board.
The struggle over the soul of Barclays has been going on since U.K. financial markets deregulated in the 1980s, fueling the ambitions of British banks to be global players in securities trading and corporate advice. A succession of CEOs pulled Barclays back and forth between expansion in that area and retreat.
Former CEO Bob Diamond, also an American, supplied Barclays with a key to competing with Wall Street on its home turf by buying parts of Lehman Brothers during the financial crisis. Mr. Staley was a top pick to replace him, but the job went instead to a Barclays retail banker who took an ax to the investment bank over three years and saw the share price rise 50%.
Mr. Staley got a second shot at the top job in December 2015. Informed by his long career at JPMorgan, he saw a chance for Barclays to emulate the American giant with a balance of consumer, commercial and investment banking -- a range of services that spans credit cards in Germany and private banking in India.
Mr. Staley had left JPMorgan after concluding he wouldn't succeed CEO James Dimon. He hired around 30 senior staffers from JPMorgan, prompting Mr. Dimon to call the Barclays chairman to ask Mr. Staley to stop.
Mr. Staley has said that Barclays should be the first choice for companies that don't want to rely solely on U.S. lenders or advisers. "The fact that we are a non-American firm in the U.S. capital markets dominated by American players, we're a very healthy diversifying counterparty," he said during a news conference in February. Walking away from the investment bank, he said, "would just be irresponsible."
In March, he ousted the head of the investment bank, Tim Throsby, a former JPMorgan executive he had picked to lead it. Mr. Staley took direct command of the operation, acknowledging its performance is "not yet where we need it to be."
Analysts expect the bank this year to make a 8.2% return on tangible equity, a measure of profitability, well below Mr. Staley's stated 9% target. JPMorgan's figure was 17% last year.
Sherborne's Mr. Bramson, who was born in England to an American mother, left Britain 40 years ago to work in private equity in New York. He contends that Barclays's trading businesses -- it makes markets for customers in stocks, bonds and derivatives -- rely too much on trading activity by fickle clients such as hedge funds and other money managers. He says competing successfully in the space requires a strong roster of corporate clients, as JPMorgan and Citigroup Inc. have, or wealth-management arms, as UBS and Credit Suisse have.
Sherborne entered the fray after it raised GBP700 million for a new investment. Some of its investors had backed Mr. Bramson when he gained board seats and pushed successfully for turnarounds at investment companies F&C Asset Management PLC and Electra Private Equity.
Mr. Bramson and his team thought Barclays shares looked inexpensive at less than GBP2, according to people familiar with their strategy. They saw a chance to get the bank to improve its low return on equity by reallocating capital away from the investment bank, much as UBS had done. They believed that would unlock the value of Barclays's U.K. retail bank, one of the best in the country.
In March 2018, Sherborne disclosed it had a 5.2% stake in Barclays, which has since increased to 5.5%.
Barclays braced itself for a critique of its business, assembling an internal team and hiring outside advisers. For months, Mr. Bramson gave little indication about what he wanted, beyond a turnaround.
Last summer, Mr. Bramson told the Barclays board he wanted to help it find a replacement for Chairman John McFarlane, who is retiring in May. Barclays ignored the request and made its own selection.
Some Barclays shareholders say they don't see how Mr. Bramson could have a better solution than Mr. Staley's management team. "We don't think that Bramson's answer is the right one because we don't think you could seamlessly and painlessly extricate billions in capital from the investment bank," says Richard Buxton, head of U.K. equities at Merian Global Investors.
In December, Mr. Bramson told Sherborne's investors in a letter that he had lost confidence in continuing discussions with Barclays because it wouldn't acknowledge its strategy wasn't working.
In February, Sherborne applied for the shareholder vote on whether Mr. Bramson should get a board seat. In March, it extended the financing for its Barclays stake into 2021, according to a securities filing, suggesting it is in for the long haul.
Barclays shares have fallen roughly 8% since Sherborne started buying. In meetings with Barclays shareholders and others, Mr. Bramson's criticism has been pointed, according to people who have met with him.
He has questioned the experience of Barclays board members and their resistance to considering opposing points of view. The faltering share price, he has said, even as earnings have improved, underlined his view that investors don't support the strategy.
(MORE TO FOLLOW) Dow Jones Newswires