LONDON U.S. hedge fund firm Coherence Capital has bought bonds issued by British bank Barclays Plc (BARC.L) in the belief that new CEO Antony Jenkins' more conservative approach will favor bondholders.
Sal Naro, who set up Coherence in January and who was previously co-managing partner at $4.8 billion fund firm Sailfish Capital, said he sold out of Barclays bonds when news of its more than $450 million fine for rigging Libor interest rates broke in June.
However, he has recently bought tier one bonds and preference shares as he believes Antony Jenkins - who replaced Bob Diamond after the American resigned in July following the Libor fine - is positioning the bank to be more conservative.
"It looks like Jenkins will take a more conservative approach, which is not necessarily good for stockholders but which is not necessarily bad for bondholders," Naro said in an interview this week.
Jenkins was appointed last month to restore the reputation of Britain's fourth-largest bank at the time the bank said that fraud prosecutors had launched a criminal probe into dealings with Qatar in 2008.
Last week Jenkins said the bank would be "balanced, less risky and more predictable" under his leadership, while the bank has said it would stop activities that cause reputational damage, possibly including tax advisory practices or the sale of structured products to small businesses.
Jenkins has also scrapped a target of a return on equity of 13 percent, opting only to deliver a return above the bank's cost of equity of around 11.5 percent.
"We've increased our position since Jenkins' appointment. We've looked at lower down the capital structure, the tier ones and the preference issues, and we've been paid pretty handsomely," Naro said.
"He's going to eliminate the structured tax area - anyone in that business has reputational risk."
Naro said he now has a "full position", which is up to 5 percent of the fund's assets.
Coherence, which focuses on fixed income, has $312 million under management and advisory.
However, Naro said he had reduced his position in HSBC bonds in recent weeks.
"HSBC is one we're a bit more cautious on. The regulator has got it under scrutiny - we've lightened up over the last few weeks."
Earlier this summer, HSBC (HSBA.L) set aside $700 million to cover fines and other costs for an anti-money laundering scandal, after a U.S. Senate report criticized it for letting clients shift funds from dangerous and secretive countries, notably Mexico.
Naro also said he had increased his fund's leverage, or borrowing, to close to maximum levels, while he is shorting France Telecom FTE.PA, Lafarge LAFP.PA and Rio Tinto (RIO.L) bonds.
"It's been quite a fall from grace for that sector (mining), you're seeing China (downward) revisions almost every day," he said.
(Editing by David Cowell)