Barclays’ shares get the blues after CEO Jes Staley’s exit amid Epstein investigation

Bank's stock fell as much as 2.7% following his departure as new boss says he will stick to status quo

Barclays shares fell as much as 2.7 per cent in early trading on Monday, after the markets reacted to news the bank’s chief executive Jes Staley was stepping down amid a UK regulatory investigation into how he characterised his ties to the late financier Jeffrey Epstein.

Barclays's stock fell 2.7 in early deals after before regaining some ground. The stock was down 1.26 per cent at 2.17pm London time at 199.7 pence.

Shareholders “must be terribly frustrated” as the bank was performing well under Mr Staley’s leadership despite a series of challenges during his six-year leadership, according to AJ Bell investment director Russ Mould.

“The bank has just come through the final payment protection insurance compensation payments in 2019, the conclusions of the Qatar fraud trial case in 2020 and seen off a fierce challenge to its strategy from an activist investor in 2021 only for chief executive Jes Staley to now step down so he can defend his reputation," said Mr Mould.

Mr Staley's shock departure comes after Barclays was informed on Friday of the unpublished findings of a report by Britain’s Financial Conduct Authority and the Prudential Regulatory Authority into Mr Staley's characterisation of his relationship with Epstein, who killed himself in jail in August 2019 while awaiting trial on federal charges related to sex trafficking.

"In view of those conclusions, and Mr Staley's intention to contest them, the board and Mr Staley have agreed that he will step down from his role as group chief executive and as a director of Barclays," the bank said, adding that the investigation “makes no findings” that Mr Staley saw, or was aware of, any of Mr Epstein's alleged crimes.

On Monday C S Venkatakrishnan, head of global markets, was announced as the new chief executive, with the smooth transition helping to "limit the damage to Barclays’ share price along with Mr Venkatakrishnan’s CV", said Mr Mould.

Like Mr Staley, Mr Venkatakrishnan has an investment banking background from his time at both JP Morgan and Barclays. He was also one of Mr Staley's first recruits at Barclays, coming aboard initially as chief risk officer in 2016.

Quote
The strategy we have in place is the right one, and we will continue our existing plans.
C.S. Venkatakrishnan, Barclays

On Monday, Mr Venkatakrishnan confirmed he is sticking to his predecessor Mr Staley’s strategy at Barclays, and says his mentor’s shock departure means he is taking over the British lender “with deeply mixed emotions”.

“The strategy we have in place is the right one, and we will continue our existing plans to transform our organisation and build on our financial prowess,” he said in a memo to staff.

“Jes has been my manager, mentor and friend for many years,” the executive, who is known as Venkat, said in his first memo as chief executive on Monday. Mr Staley “became chief executive of Barclays in one of our darkest hours, and devised and implemented a successful recovery strategy of outstanding vision”, Mr Venkatakrishnan recalled in the memo.

Mr Staley’s departure ends a rollercoaster ride at the help of the UK’s largest investment bank. During his tenure, he was embroiled in highly personal campaign by activist investor Edward Bramson, who tried to use the Epstein scandal to get the chief executive fired.

British born layer Mr Bramson first took a stake in Barclays in 2018 when he urged the lender to scale back its investment operations, which he considered under-performing, and focus instead on consumer operations.

However, in May Mr Bramson has sold his 6 per cent stake in the bank abandoning a three-year battle to overhaul the British bank.

Mr Staley was also in charge when the bank was taken to court by British financier Amanda Staveley in a £1.6 billion legal battle over an investment deal with Qatar at the height of the global financial crisis.

“Mr Staley had fended off Edward Bramson’s call for the investment bank to be spun-off and the unit’s performance in the first nine months of 2021 have gone a long way to justifying that stance,” said Mr Mould.

In a separate incident, Britain's financial regulators and Barclays fined Mr Staley a combined £1.1 million in 2018 after he tried to identify a whistleblower who sent letters criticising a Barclays employee.

Despite the challenges, Barclays generated £4.8 billion in pre-tax income between January and September, compared to £3.2bn in the prior period a year ago, generating a 16.4 per cent return on equity and two thirds of the bank’s total pre-tax profit for 2021 to date in the process.

The decision to pop a new leader straight into the chief executive role, shows that Barclays had a succession plan in place, “given how seamlessly Mr Venkatakrishnan has taken the reins as chief executive, pending regulatory approval” Mr Mould said.

Meanwhile Mr Staley must now focus on defending his reputation and contending the investigation's findings.

Mr Staley dealt with Epstein during his long career at JP Morgan, where Epstein was a major private banking client until 2013.

A college dropout who styled himself as a brilliant financier, Epstein socialised in elite circles, including former and future US presidents. In 2008, he was registered as a sex offender but continued to maintain ties with powerful people in business and finance.

The New York Times reported in 2019 that Epstein had referred “dozens” of wealthy clients to Mr Staley. It also reported that Mr Staley visited Epstein in prison when he was serving a sentence between 2008-09 for soliciting prostitution from a minor, while Bloomberg reported he visited Epstein’s private island in 2015.

U.S. financier Jeffrey Epstein (C) appears in court where he pleaded guilty to two prostitution charges in West Palm Beach, Florida, U.S. July 30, 2008. Picture taken July 30, 2008.  Uma Sanghvi/Palm Beach Post via REUTERS.  NO RESALES. NO ARCHIVES. SOUTH FLORIDA SUN-SENTINEL OUT

Mr Staley sai last February that his relationship with Epstein had "tapered off significantly" after he left JP Morgan in 2013, and that he had not seen the disgraced financier since taking over Barclays in 2015.

"I thought I knew him well, and I didn’t. I’m sure with hindsight of what we all know now, I deeply regret having had any relationship with Jeffrey Epstein,” he said at the time.

Epstein’s links with prominent men has seen Leon Black, the billionaire investor, step down from Apollo Global Management, the private equity company he co-founded, earlier this year after an outside review found he had paid Epstein $158 million for tax and estate planning.

Meanwhile Britain’s Prince Andrew was forced to quit royal duties over his associations with Epstein and Microsoft co-founder Bill Gates has said it was a “huge mistake” to spend time with him.

While Mr Staley successfully honed Barclays’ strategy, the bank’s share price fell by 9 per cent during his near-six-year spell as chief executive, while the FTSE 100 rose by 14 per cent in the same time frame.

"Shareholders will be looking to Mr Venkatakrishnan to improve upon that record," said Mr Mould.

Updated: November 1st 2021, 2:51 PM
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