Shareholder interest is a thing of the past

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The Barclays Bank fiasco, of it accepting an offer of funding from Middle East investors at an interest rate of 14%, at a tax cost to the UK government of £120 million a year, all as an alternative to lower cost, better term UK government finance, is astonishing. So too is the fact that they have committed themselves to fees of £300 million in connection with this deal, whether it is approved by shareholders or not.

Actually, it is more than astonishing: what it represents is the end of shareholder interest. Barclays have convincingly proved that managements do not run their quoted companies on behalf of their shareholders. They run them on behalf of themselves. There is little doubt that this deal has been created by arch tax avoiders Roger Jenkins and Bob Diamond, who appear to have effective control of this bank, and that they have acted with the sole intention of preserving their £20 million plus annual employment packages. As I have argued here before, this is a prime example of public benefit (this time represented by both the state, through loss of tax, and shareholders through loss of value) being seized for private gain by an out-of-control elite within our financial services sector; a trait which underpins the whole of the current financial crisis.

It is time to shareholders to reject this. They can vote this deal down . They may still get government money as an alternative. But either way, they would be better off both in the short term from rejecting this violation of their influence, control and value and in the long term by establishing the claim for ordinary shareholders to have the companies which they supposedly own managed in their best interest.

As the FT has noted this morning:

A third voting adviser has added its weight to the row between Barclays and its shareholders over the bank’s proposals to raise fresh capital from Middle Eastern investors.

Pirc, the pensions and investment research consultants, said yesterday that shareholders should reject the plan to raise £7bn, most of it from the Qatar Investment Authority and Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi’s royal family, without giving existing investors the chance to take part. It urged shareholders to “send a clear, unequivocal message that they do not think this [is] a good solution to the bank’s current situation, and that it has come at a heavy price for shareholders”.

I am not confident they will do that. For far too long investment managers have identified with management of companies and not with their clients, who usually have a very, very different outlook on life. It’s time for change. Candidly, most shareholders and most stakeholders have a similar view of life: they are often the same. Investment managers have to appreciate that now, reject the exploitation of their client’s assets by this financial services elite and tell Barclays what they can do with their deal.