Barclays' results were out this morning. Barclays' corporate and investment bank (CIB) looked good: profits in the unit rose 14% on 2015 and revenues were up 42% in the fourth quarter, versus Bernstein's market average of 16%.
So, is now a good moment to join Barclays? More to the point, is now the time to leave J.P. Morgan and join Jes Staley?
If you work for J.P. Morgan and you join Barclays, you'll feel right at home. Barclays is where J.P. Morgan alumni reconvene. The chief executive is from J.P. Morgan. The head of the investment bank is from J.P. Morgan. The CIO is from J.P. Morgan. The COO is from JPMorgan. And the CRO is from...J.P. Morgan. The route from Barclays to J.P. Morgan could not be more well trodden if it were an ancient neolithic track.
Needless to say, all these fancy J.P. Morgan hires over the past 12 months have been causing some upset at Barclays. The British bank theoretically had a hiring freeze last year and has plenty of legacy staff who could have filled the top roles. The murmurs of discontent have been suppressed by CEO Jes Staley, who reportedly stood up at a recent town hall and said 2017 will be a difficult year and that the [talented] J.P.M. people have come to, "fix the bank for you." So not only is Barclays hiring from J.P. Morgan, it's also eulogizing J.P. Morgan people as its rescuers....
Barclays has stopped breaking out bonuses for its investment bank (now grouped together with the corporate bank in the style of J.P. Morgan), so we can't say whether the investment banking bonus pool is really down by another 7% as reported by Bloomberg yesterday. Barclays did say, however, that the 2016 bonus pool for its front office investment bankers is down a mere 1% on 2015 (at £875m) and that a far higher proportion of its bonuses are being paid in cash.
The higher cash bonuses are good news. For the past three years (at least), Barclays has deferred 100% of all bonuses over £250k ($312k) and 100% of all bonuses for its managing directors. Recipients received nothing at all in year one and everything over years two, three and four.
Not any more. In order to flex compensation expenses to match revenues, Barclays said today that it will structure bonuses for its material risk takers (MRTs) as per the following chart from its 2016 remuneration report. In other words, 100% deferrals now only kick-in above £1m, and senior Barclays people can now receive 40% of their bonuses in cash in the first year.
If it really likes you, Barclays will pay you a salary alone of nearly £2m and total compensation of nearly £6.7m. So says the chart from Barclays below.
In the new Jes Staley-J.P. Morgan era, Barclays is, however, skewing its pay to its very top people. As the chart below (also from the remuneration report) shows, the small number of people earning £5m+ has risen under Staley, while the number of people at all other remuneration levels has fallen. The rank and file at Barclays may also see more pay cuts this year: during today's call Staley said there's room for a "compensation response" in the corporate and investment bank in 2017.
J.P. Morgan may be the market leader in fixed income trading, but Barclays' credit traders are fairly special.
The British bank's credit trading business achieved a 44% increase in revenues last year. Staley particularly praised Adeel Khan, Barclays' head of credit trading for his efforts in 2016.
Despite Khan's efforts, Barclays' fixed income trading business didn't do as well as J.P. Morgan's last year. It didn't do that badly either though. As the chart below shows, revenues across Barclays' fixed income trading business rose 19% last year - more than anywhere else except HSBC and J.P. Morgan. Equities revenues weren't so impressive: they fell, but by less than at Barclays' European rivals.
Barclays may not mind being beaten by J.P. Morgan on fixed income revenue growth. Like Andrea Orcel at UBS Staley said today that growth isn't the main point. It's more about "sweating the balance sheet" and making the investment bank do more with fewer assets.
Even so, the return on equity at Barclays' corporate and investment bank was around 7.5% last year according to Jefferies. At J.P. Morgan it was 16%. Barclays has a way to go.
In line with the policy of "sweating the balance sheet" and chasing returns rather than growth, Staley boasted today that the bank has more stable fixed income sales and trading revenues than its peers. Unlike other banks, Staley said Barclays doesn't chase revenues and put more "inventory on the table" when volumes pick up. Because of this, it doesn't benefit from big upswings in fixed income revenues when volumes and volatility are high, nor does it suffer as much when things go wrong.
Based on variations in Barclays' fixed income revenues last year, this looks sort of true. Barclays' revenues were certainly less volatile than J.P. Morgan's between the first and second quarters, but there was a pretty big swing at year end...
J.P. Morgan has been chasing market share in equities sales and trading. So has Barclays. Only J.P. Morgan has been successful - growing its market share to 13.9% last year.
Barclays' equities business has been hit by the "dark pool scandal" in the U.S. and by its ongoing weakness in Europe. Throsby transformed J.P. Morgan's cash equities business and will now be looking to do the same at Barclays. "We're still a relatively new brand to the equities business in Europe," said Staley today. "- There is room to grow there." Expect Throsby to hit up some of his ex-J.P. Morgan equities colleagues in the months to come.
Lastly, what if Barclays asks J.P. Morgan bankers to come and work in its investment banking division (IBD)? Here, it's worth bearing in mind that Barclays is smaller everywhere than J.P. Morgan - including in its home market of Europe. As the charts below, from Dealogic show, Barclays' IBD business is half the size of J.P.M's in the Americas and less than a quarter as big in Asia. Even so, Barclays is a fairly significant player in energy and financial institutions banking globally.
If Barclays wants to increase the return on equity in its CIB, analysts suggest it will need to grow its IBD business in the U.S. Hiring a few J.P. Morgan rainmakers seems an obvious way of achieving this. Wait for the call...
Investment banking fees at J.P. Morgan and Barclays: