Activist investor Edward Bramson's departure from the share register of Barclays PLC is vindication for CEO Jes Staley's determination to focus on the investment banking arm, said analysts.

Sherborne Investors Management LP, Bramson's investment vehicle, announced that it had sold its entire 6% stake in the U.K. bank after three years of agitating for it to cut back its investment banking operations and to return money to shareholders.

Barclays' corporate and investment bank was the star performer during the pandemic in 2020 and into the first quarter of 2021. Staley has, since Bramson's appearance, repeatedly stressed the importance of the i-bank to the group.

"The pandemic has given Staley a real victory on his strategy of a diversified bank. Investors as a whole don't like investment banking as a business because of the uncertainty so there was some sympathy with the view of Bramson. But I think 2020 just changed everything. Bramson was saying focus on retail, get rid of the investment bank, but in 2020 unsecured credit died and the retail bank got hurt badly from the cut in interest rates and it was the investment bank which really bailed the bank out," Fahed Kunwar, equity analyst at Redburn, told S&P Global Market Intelligence.

Barclays' i-bank contributed 72% of group profit before tax, with record income in banking fees, up 35%, and equities, up 65%, in the first quarter, offset by a lower fixed-income performance, albeit against a strong first quarter last year.

The return on tangible equity at the corporate and investment bank was 17.9%, while at the i-bank alone it was over 20%. Half of Barclays' income comes from outside the U.K. and 69% of its income in the first quarter was non-interest income, helping boost performance in a low interest rate environment.

"For example, 60% of group income came from banking, markets and corporate clients this quarter, partially offsetting the pandemic-related headwinds that affected our consumer businesses," Staley said while unveiling first-quarter results.

Income at the bank was down 6% overall with the retail bank Barclays U.K. down 8% and its credit cards business down 22%, but the corporate and investment bank was close to flat on the previous year's strong first quarter.

"The reality is that the lockdown madness and all that followed (low interest rates etc.) crushed retail banking earnings and boosted volatility to the benefit of investment bank," said Ian Gordon, analyst at Investec, via email, who suggested the pandemic perhaps vindicated Staley "by the back door."

In a note to investors, Gordon said traditional thinking was "and perhaps remains" that long-term returns from a U.K. retail/commercial bank ought to be better than those of a U.K.-domiciled investment bank. However, he said investor appetite for a further round of heavy restructuring charges to carry out such a reshaping was limited.

"Moreover, we think this thesis is demonstrably 'less true' than perhaps appeared to be the case in the context of a 'permanent' lower interest rate environment," said Investec.

'End of a long story'

Bramson's retreat means calls to cut back the i-bank are almost certainly over for the time being, Edward Firth, managing director at Keefe Bruyette & Woods, told S&P Global Market Intelligence.

"I always question how you can value a business where you don't know where the revenue is going to be in the next quarter. But, for the time being, Staley has been vindicated. He's not going to step back now. Bramson calling it a day is not the beginning of a story; it's the end of a long story," he said.

In its statement, Sherborne said it regretted that it was not able to get a representative on the board at Barclays, after Bramson had failed to win the backing of shareholders for a seat in 2019.

It also said: "Business is not a science and so people of goodwill may, therefore, sometimes differ."

A year ago, Bramson called for Staley's removal after he raised the issue of the CEO's dealings with convicted sex offender, the late Jeffrey Epstein, when Staley was at J.P. Morgan Securities LLC, citing a subpoena requiring Staley's former bank to hand over details of his communications with Epstein. U.K. regulators are investigating whether Staley has been sufficiently transparent over his links to Epstein.

Bramson off-loaded his Barclays stock at an average price of 186 pence per share, which Sherborne points out in its letter to investors is higher than the 73 pence per share the bank traded at a year ago. However, it is less than the 200 pence per share that Sherborne acquired the shares at in March 2018. Sherborne has been the bank's biggest single investor during most of that period.

Barclays declined to comment on Bramson.