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What’s really going on at Barclays’ investment bank. Two charts

Barclays investment bank

Barclays’ investment bankers may be celebrating the appointment of Jes Staley as the bank’s CEO, but that doesn’t mean their future will be glorious.

As the chart below, from today’s ‘fixed income presentation’ shows, Barclays investment bank is doing better than it was. However, it’s still not doing well – especially compared to the bank’s other business areas. Return on equity (RoE) in the investment bank was 5.2% in the third quarter; in Barclaycard it was 28.3%.

Barclays investment bank

Does Barclays care? If it does, it’s not exactly saying so. CFO Tushar Morzaria said Tom King’s investment bank has been very good about rationalizing capital across the business. Profit before tax rose by 12% year-on-year in the quarter. The investment bank made, “good progress,” Morzaria said. Investment banking division (IBD) income in particular increased 20% year-on-year, driven by higher M&A fees. The investment banking team has been acting on “key transactions” said Morzaria, citing the $34bn Williams oil deal in the US.

In sales and trading, macro did well (‘due to higher income in rates and currency products, reflecting increased market volatility’), credit didn’t (‘driven by lower income in securitised products and distressed credit, partially offset by higher revenues in the flow businesses’) and equities increased by 12% (‘due to higher income in cash equities and equity derivatives’).

Did this really amount to an impressive quarter though? Not entirely, suggests Chirantan Barua, UK banking analyst at Sanford Bernstein. As the chart below shows, Barclays outperformed peers in investment banking and FICC, but it seriously underperformed its peers in equities sales and trading. – And this is particularly damning given the weakness of Barclays’ equities business in the third quarter of 2014, which was expected to translate to big growth this year.

Barclays Bernstein

What next? October has not been a good month in the investment bank, said Morzaria. Barclays has ‘accelerated strategic cost programmes’ in the investment bank and is expected to cut costs harder in 2016. Bonuses at Barclays are likely to be hit hard this year. The cost income ratio in the investment bank was 81% in the third quarter, and Morzaria said this was mostly due to the cost hangover of previously deferred bonuses. This year, he implied that bonuses will be cut considerably as a result.

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