The Verdict Is In – Here’s How You Judged Barclays

3 | By Shah Gilani

Last week, I gave you the bare facts of why the UK’s Serious Fraud Office charged Barclays Plc. (NYSE:BCS) and four former top execs with conspiracy to commit fraud.

I also asked my readers, as part of the jury in the court of public opinion, if they found Barclays guilty or innocent.

Your verdict was a resounding… guilty as charged.

There were five times as many cries of “Guilty!” than there were defenses of innocence in the comments thread of last week’s article. It seems as though the majority of my readers have little patience for fraudsters wielding power.

Some of your comments about Barclays stood out to me particularly, as well as a few comments from earlier, and I want to address them now.

Here’s how you judged Barclays, and my response to some of your best recent comments…

The Court of Public Opinion

Carol K: A crime against simple decency. Life in America comes down to rampant corruption at every turn. Shocking when your neighborhood bank of 40 years has no honor or intention to have your best interest at heart. Instead it’s to screw people out of whatever possible in a world of deceit. No more moral code to keep people honest anywhere in sight. Ashamed and embarrassed for humanity.

Well said, Carol, it is a “crime against simple decency.” At the core of it, it’s the bankers and their minions, as was woefully demonstrated by what “underlings” were doing at Wells Fargo for a few bucks more. They are supposed to shepherd OUR money, the money we deposit in their banks for safekeeping, and our trust that the capital markets are “free” and unencumbered by the specter of crooks, that they’ve instead turned into a criminal enterprise that renders decency naked and afraid.

Ronald G: Guilty to taxpayers or other financiers?

Surely they deserve a medal for not involving the taxpayers. It seems that if the government rips off the taxpayer that’s ok… but don’t dare go outside the grid. Why on earth pick on these guys? If they are found guilty, well then, by precedent, EVERY banker in the world is guilty. So, let’s not split hairs here – let us charge the whole bloody lot.

“Not involving the taxpayers.” What was I thinking? I should have praised them for that. In fact, they deserve to be lauded not locked-up. Maybe I’m just a little too harsh. Set them free! NOT!

Norman J: Barclays saved tax payers a lot of money. No one was harmed. Everybody benefited. These bankers should be rewarded for their smart thinking.

N.J. you aren’t a banker, are you?

Knobby: Team Qatar is known for their beyond-the-law, scruples-free dealings. They figured it would be nice to have a well-respected British bank in their back pocket. They have access to trillions, since the West has been paying them good, honest money for their natural resources for 60+ years. And they make sure that cash is kept by an elite clique that is beholden to the group.

So, are the Barclays bankers guilty of violating British law? It seems they are. Was it a bad idea? It is when it is advertised as a selfish play to keep their out-sized compensation intact. Not to mention they sold their allegiance to a gang with a bad rep.

Knobby (love that name), you’re cranking on all cylinders my friend. Thanks for chiming in.

Jeff W: The US government is more guilty in my mind. Many of the institutions who were forced to take “bail out” money (which was actually a government loan) paid it back in 7 months. At a high rate of interest… They were forced to take it supposedly because the govt. did not want the public to distinguish between which banks were really solvent and which ones were not. In the end, institutions like Morgan Stanley, Goldman Sachs, and Bank of America (who was forced to buy an insolvent Merrill Lynch) all paid a high [price] to the govt., all while receiving negative publicity for wrecking the financial system. The Federal Government was a bigger culprit than some of these institutions (although some were complicit and deserved to fail like Lehman did).

Oh Jeff, we need to talk, my friend. Not that the U.S. government isn’t guilty of a lot of things – they are. But your impression of how well off some banks were is in fact really far off the mark. You’re almost right in saying Goldman didn’t need the money from the government; they could have gotten by without it. But they’d be out of business if the Fed didn’t take AIG’s money and give it to Goldman to keep their doors open. And BoA buying Merrill, that wasn’t even close to being a forced merger. BoA wanted Merrill in the worst way. They were just too stupid to understand what a leveraged mess Merrill had become. All the banks that took money needed it. Only Wells Fargo was solvent. None of them paid a high enough price for what they did. The government didn’t do squat to them.

We should talk. I was in the thick of it.

Comments I Couldn’t Help But Respond To

Marlin M: Great thinking! Congrats to you! Are you continuing with cheap puts on Kroger and Co?

Thanks Marlin. Yes, we’re going to “carbon trade” those big winners, again and again. It’s just a matter of timing. We’re getting close to going back in on a bunch of the big winners we’ve had, some of which we’ve already carbon traded several times for a few hundred percent gains. Needless to say, my Zenith Trading Circle subscribers are quite happy. And hopefully you are too, if you’re following the free recommendations I give you at WSII.

Fallingman: “The Whole Foods acquisition fills in the missing link in Jeff Bezos’ grand plan to sell the world to the world, and profit from the sale of everything including books, clothes, food, and anything to do with data.”

Perhaps you could define “profit” for us. Amazon doesn’t make a meaningful profit on what it’s doing now … and the grocery business is a notoriously low margin business. Do you imagine they’ll be able to transform it into a higher margin business somehow? I don’t. And low margin businesses that handle a ton of stuff and employ a lot of people are pretty lousy businesses. I suppose the vague expectation is that they’ll streamline processes … streamline the supply chain, automate checkout, etc. and be able to do more with fewer people. Okay. Good luck with that.

Not that I have any firm opinion on the company’s approach in general or the merger in particular. Maybe they are the product of genius, I dunno. But just about the last place I’d look for expansion/profit opportunities is the grocery business. Maybe real genius would look around and know what businesses to avoid and when to exercise some restraint in its quest for domination. Possible overreach? Napoleon and the Russian winter come to mind.

No Russian winter here – though a nuclear winter for some retailers, for sure. I always admit when I’m wrong or late to a party, and if I need to, I apologize. I’m apologizing here, for being late to the Amazonation party.

You seem to get it, but like I was, you are skeptical. I’m not any more because NOW I get Bezos’ genius. Yes, he’s “handling a ton of stuff” and that’s the big deal. With volume you can build scale, with scale you can handle bigger volume, with all that you can bend suppliers, squeeze competitors, create economies of scale in distribution and march backwards into manufacturing, where you take out the competitors whose products you sell on your platform because you wanted an audience of buyers. It’s genius. And the cloud business… REALLY GENIUS! Amazon Web Services is the 800-pound gorilla in the room when it comes to the cloud. Microsoft, which is #2, is about ¼ the size of AWS! As far as profits, they’ve started to flow. Amazon will become so hugely profitable (like Standard Oil in its day), that “they” will come after Bezos like they did Rockefeller. In the meantime, own Amazon.Com Inc. (NASDAQ:AMZN) – it’s going to the moon and beyond.

Robert: Shah is right to point out that the yield on a stock goes up when the stock price drops with the overall market, and that can be a good time to buy the stock (assuming there isn’t an un-fixable problem with the company). But most talking heads on TV look at a stock with an attractive yield and automatically say “don’t buy it, must be something wrong with it because the yield is high”.

Thanks for pointing that out Robert. A good dividend yield is a precious thing. As long as it’s not so high as to be unsustainable, or that the company has to borrow inordinately to maintain the payout. Really crazy high yields can, in fact, be a warning sign. But they should be obvious. At least as obvious as a red flag.



3 Responses to The Verdict Is In – Here’s How You Judged Barclays

  1. Lourdes says:

    Dear Mr. Gilani,
    I am not using FB or Tweeting… so I will ask my Q here. Speaking of Banking… what to you think of BITCOIN ROTH? I haven’t seen any articles where you address crypto. Others at the financial publishers have addressed Bitcoin… but you haven’t… not anywhere that I can find. I could Google to see i.f. there is a documented position. But seemingly, you have been quite reserved on this matter. Yet for the sake of all w.h.o. will experience more Bit acceptance after the 28 of Juliet… I would appreciate your perspective on this new form of exchange.

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