Monday, August 13, 2007

What’s Happening at Barclay’s?



It began innocently enough.

A few odd stocks started collapsing—falling really hard for two or three or four days in a row—on no apparent news.

The first such stock I noticed was Teleflex (TFX), a fine, New York Stock Exchange-listed industrial conglomerate whose share price hit a 52-week high of $85 one fine day in July, and then dropped almost 25 points in the next two weeks on absolutely no news.

Now, Teleflex happens to be buying a medical products company called Arrow International, with which I am quite familiar.

And reasonable people might argue that Teleflex is paying an exorbitant price for Arrow, given the fact that Arrow’s core product line (something called central venous catheters—basically fancy straws that allow doctors to inject fluids into the body) are losing share to other types of catheters, thus calling into question Arrow’s ability to grow revenue in line with other medical products companies.

Furthermore, Teleflex plans to sell one of its existing businesses to help fund the Arrow transaction. Given the seize-up in the credit markets and the swift reduction in the number of private equity firms able to buy businesses on margin the way people used to buy houses in Orlando, Vegas and Sacramento, reasonable people might worry that Teleflex will get a less-than-super price for its existing business.

Thus, the market might be spooked into thinking that Teleflex was buying high and selling low, simultaneously.

At least, that was my best guess as to why shares of Teleflex had begun to crater.

But along came more Teleflexes—stocks suddenly dropping as though somebody’s life depended on it.

Ashland, Computer Sciences, Office Depot, CIT and Robert Half, among others, all experienced sudden, sharp drops under relentless selling pressure—most of them on absolutely no new news.

Sure, Office Depot had missed earnings, and yes Computer Sciences had been juiced upwards on private equity takeover speculation. But the decline in these and the others was quite sudden, in tandem and without let-up.

What on earth, then would a chemical company have in common with a high-tech computer services outfit, an office products retailer, a finance company, a headhunter and a diversified conglomerate?

In every case, their single largest publicly disclosed investor is identified as Barclay’s Bank.

Now, Barclay’s is as big as a bank can get—a little volatility in the credit markets is not likely going to cause a problem leading to the wholesale liquidation of assets, and certainly not assets that presumably belong to investors in Barclay’s equity funds, not the bank itself.

Still, Barclay’s is seeking to buy ABN Amro for what is widely considered to be a ridiculous price. And it would appear that Barclay’s has been selling stocks out of its funds in a get-me-out fashion.

Is it all an innocent coincidence, or is it one of the following:

1) Some trader on Barclay’s equities desk hit the wrong button on their computer;
2) The portfolio managers at Barclay’s all decided to sell stocks they had owned in size for a long time into a weak tape.
3) Something else is going on at Barclay’s that hasn’t come to light.

I’m willing to bet the answer is Number 3.

Any informed observations would be most welcome.


Jeff Matthews
I Am Not Making This Up


© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

17 comments:

Goldenpiggie said...

Just a specualtion: perhaps Barclays is heavily involved in the Asset-backed commercial paper market, with bunch of them coming for refunding this week.

matt said...

Interesting. I had chalked up the extreme recent weakness in Nabi (NABI) to pressured selling by Renaissance Tech/quant funds. But looking at it now, I see Barclays is (was) also a top 5 holder there.

Granted this is a speculative small cap biotech that deserves to get beat up in a weak tape, but ferocity of selling suggests forced-like exits..

At the Money said...

BGI is the shareholder of these stocks. The sell-off is most likely related to the unwind of quant model-driven trades.

Zach said...

Interesting thought, I hope someone can shed some light on it.

Gordon said...

Barclays is the largest disclosed investor in all of those stocks because Barclays is the largest indexer in the world. You can pick practically any stock in the S&P 500 and the odds are pretty good that Barclays is either the largest investor or 2nd or 3rd. They're the largest holder of Exxon, teh 2nd largest holder of GE. I think you're barking up the wrong tree here.

Moreover, if Barclays was REALLY having problems, you wouldn't see it in their asset management business, because those aren't securities that Barclays owns, they're just securities that they manage.

Brian said...

Jeff - Barclays Global is one of the largest investors on the planet and is the largest publicly-disclosed institutional investor in over 500 stocks by my databases's count, including XOM, GE, BAC, etc. A large portion of their funds are index replicators for the S&P and Russell indices...and therefore aren't actively managed. You might be just seeing a very common coincidence here...

El Cid said...

Barclay's, being one of the biggest quant managers in the world, is presumably undergoing the same problems as Goldman, James Simon, DE Shaw, and the rest of the quants. These companies inadvertantly had the same long short bets and when one had to make forced liquidation trades, so too did the rest. Just my 2 cents, worth 1 after Bernanke's finished.

buckeye1 said...

I'm noticing the same thing going on in some obviously shorted stocks, in reverse. Also some Goldman longs getting killed until the cash infusion today. Some names owned previously by Sowood have gotten absolutely destroyed, I hear Citadel is selling aggressively. Barclays is the biggest quant fund around, there was a business week article on their quant fund a while back, I'm almost sure they are reducing leverage.

jhellman said...

Its the ETFs. Barclay;s has a huge ETF business and ETF's are a prime componenet in quant portfolios. I can't confirm it, but it seems likely that a lot of funds running on leverage, even if they weren't in trouble, likely had their leverage cut by the prime brokers. Thus, ETF positions were unwound causing all sorts of volatility in the underlying stocks.

whydibuy said...

Funny how the market topping in July coincided with the capitulation of two permabears. 1) Andrew Smithers in his commentary dated July 24 said " Other helpful signs that lead me to expect the market to remain robust for the time being are the low levels of volatility and credit spreads " And then theres Comstock in their commentary dated July 19 " With all this said, the market has broken out of a long term trend channel to the upside....there are times to get out of the way....investors should cover any common stock shorts or index puts" . Sounds like a bell ringing to me. Then theres Jim Stack who believes that there is a 70% chance we have entered a bear market. He said " The DJIA has closed higher in 5 of 8 trading days, buy declining stocks outnumbered advancing issues in 7 of 8 of those days. That type of negative divergence has occured only 15 times in 75 years-the majority were in bear markets" He also noted that On Monday of last week, the DJIA hit 14 k while declining stocks overwhelmed advancing issues by a 2:1 margin. " That divergence has never happened before in market history, though again, lesser divergences have typically been characteristic of weakening markets" He also noted a technical indicator based on the 10 month smoothing of the average 14 month and 11 month rate of change in the S&P 500. It has indicated a runaway bull market that hasn't experienced any corrections or pullbacks and one that is usually headed for disaster. It has occured 6 times in history 1929 -86%, 1946 -29%, 1969 -36%, 1973 -48%, 1987 -33% and 1998 -18% ( a fed rally recovery then the market proceeded to lose half its value by 2002) Interesting Times.

jeffrey said...

Heres another one that was demolished last week -RGR. Guess who the largest holder? Bingo.

Pat Burns said...

FYI... from a Marketwatch article tonight...
http://www.marketwatch.com/news/story/quant-quake-shakes-hedge-fund-giants/story.aspx?guid=%7B490A6401%2D7CF8%2D4610%2DB653%2D487A12681D61%7D&dist=hplatest

"Barclays Global Investors, the money management arm of U.K. bank Barclays Plc (UK:BARC: news, chart, profile) and one of the world's largest quantitative fund managers, has also been affected this month, according to the Wall Street Journal.
The performance of BGI's 32 Capital Fund Ltd. has been challenging, the newspaper said, citing a person familiar with the fund.
Spokesman Lance Berg declined to discuss performance or the strategy of the firm's hedge funds.
"At this time we are maintaining risk levels and feel that our portfolios are positioned appropriately," Berg said, reiterating a statement he also gave on Friday."

Ryan said...

I don't think indexing and etfs alone can explain some of these moves. OMG is another co. to take a look at--big Barclays and Goldman positions.

Aaron said...

I wonder if Barclay's selling has anything to do with its shortfall in their BOE account? Readers can use this link, http://online.wsj.com/article/SB118771731773504200.html, for further information. You'll need a subscription to The Wall Street Journal Online in order to access the article.

Dave said...

You might be interested in this column from The Times on Barclays tapping the BofE which seems to raise the question of just how bad is it ? And what're the repercussions likely for one of the world's major EFT/fund managers ?
Barclays forced to arrange £1.6bn BoE emergency loan ( http://us.lrd.yahoo.com/_ylt=Ahsjq45OLojgsKF0AJrs.D_cNXwV;_ylu=X3oDMTFmNXA5bHVlBGlpZAM1Mjk1OTE1NjE1NjExNzU4ODYwBG5vaAM1BHBvcwMxBHJpZAM1NTcwNjYz/SIG=143p0140p/**http%3A//www.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2358155.ece%23cid=OTC-RSS%26attr=1185799 )

Christopher Caputo said...

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajIqaYXY3ED0

>>>There's knowledge buried in the price that Barclays
is being charged in the money markets. We just don't know what
that knowledge is yet.<<<<

clark said...

By now, the news is out... Barclay's is liquidating slightly to buy the choice meat in the banking/finance meltdown. Reduced leverage is also prudent in general, so overall Barclay's strategy is in to win both ways.