Barclays should call time on golden hellos as it seeks a new CEO

Is a CEO of Barclays taking on the most difficult job in banking? Or one of the most attractive?

The blue eagle has reportedly kicked off its search for the successor to Jes Staley, planning for a handover at the end of 2020, although that could be extended until the 2021 AGM.

Five years at the top of an institution like this one is about what you’d expect so it makes sense. But there’s a spanner in the works, one that could mess with the bank’s plans for a smooth handover. It is the enforcement investigation Britain’s financial watchdogs are conducting into Mr Staley’s relationship with Jeffrey Epstein, financier, friend of Donald Trump and convicted sex offending felon, which could force Barclays to either hasten the process or install an interim management team.

Neither of these would represent a happy outcome for the bank at a time when activist investor Ed Bramson, who wants to shear off the chunky investment bank, is still lurking on the shareholder register.

He has been relatively quiet since last year’s failed attempt to force his way on to the board, but instability goes hand in hand with opportunity for corporate raiders.

This, Barclays skill at generating negative headlines, and a troubled political situation in Britain, will pose considerable challenges for Staley’s successor.

On the other hand, running a big bank is still a prestigious and rare opportunity and the rewards for taking the reins at this one could be rich indeed.

Staley has caused Barclays considerable difficulties through being involved in not one but two enforcement investigations (the first concerned his attempt to out a whistleblower).

However, he will leave the bank in fair shape.

The shares have been less than stellar performers on his watch. They’re down by more than a fifth compared to when he joined.

But there is an argument that holds the market is undervaluing them at their current level, and perhaps by quite a bit.

The PPI debacle is in the rearview mirror, Barclays has a chunky capital cushion, trades on a significant discount to the value of its in-force business, and boasts dividend yield that looks generous indeed. The forecast is for 5.7 per cent for this year, rising to 6.2 per cent and then 6.8 per cent, a level that looks like witchcraft in these times of near-zero interest rates.

Brexit, and the British government’s apparent determination to hammer its people with a backdoor no-deal outcome, obviously casts a pall over the stock the same as it does overall UK assets. It will be doing so for some time to come.

But Barclays’ shares still have the potential to head north if it can just find a creditable, and less accident-prone, CEO to succeed Staley.

If that CEO can get the share price motoring, their payoff will be handsome indeed.

Which brings us to the vexed question of golden hellos and investment bankers.

Barclays plays with the big boys on Wall Street, which is something the rest of Europe’s big banks have given up trying to do.

For that to continue, its directors will probably feel they need someone with experience in the field. Trouble is, most of the Americans who have that come with outsized, many would say unrealistic, salary expectations, and that’s not just true of Americans who’ve cut their teeth on Wall Street.

They also typically possess vast hauls of restricted stock, which make up the lion’s share of their pay but fall away if they leave.

New employers usually end up having to buy them out as a result.

However, such golden hellos have become increasingly unpopular with UK investors, and with good reason. Why should they be expected to line the pockets of a boss who has yet to prove their worth?

Barclays will offer its new leader a rich haul of share options because that’s what banks do. An effective chief executive could do extraordinarily well out of them. That should be motivation enough. Shareholders should make that clear to the bank’s board.