When Deutsche Bank’s analysts released their list of questions about European banks yesterday, they had a few queries regarding Barclays including what the bank’s doing to boost revenues earned from its risk weighted assets, whether it intends to increase the market share of its investment bank, and how it plans to improve its return on equity (RoE).
In a presentation today, head of the corporate and investment bank (CIB) Tim Throsby has offered some clarification. Barclays is going for growth. If you’re looking for an investment bank that’s willing to take trading risk, look no further. If you’re looking for a bank that’s growing in M&A, you’re in luck. If you want a European bank with a balanced business and strength in the U.S., Barclays is it.
For all Barclays’ historic strategy flip-flops, Throsby’s vision has a certain appeal.
1. Barclays’ trading business is well divided across credit, equities and macro…
Throsby would like to point out that Barclays already ranks second globally in high yield trading and fourth globally in flow credit trading.
2. Throsby is building out the markets division
Since becoming CEO of Barclays’ investment bank in January 2017, Throsby has done some big hiring. In May, there were reports that he planned to hire 50-100 people for the markets business. By July, he’d already hired 20 senior equities professionals along with the likes of Asita Anche from Goldman as head of markets quantitative e-trading and data science, Filippo Zorzoli from BAML as head of EMEA macro distribution. In August, it hired a new head of equities from Credit Suisse and this month it hired Michael Lubinsky from Brevan Howard to head macro trading.
Barclays is the hiring story of 2017. Throsby has budget and he’s not afraid to use it.
3. Throsby wants to redeploy capital to the investment bank
While other banks trim the capital they’re allocating to their sales and trading businesses, Barclays is doing the polar opposite. It wants its traders to have more capital and is allocating an additional £6bn to them this year, to be distributed as follows.
4. And to provide additional leverage
The extra risk weighted assets allowed at the investment bank will be accompanied by an additional £50bn of leverage… Lest there be any doubt: risk taking at Barclays is back on.
5. By doing this, Throsby plans to hike revenues and returns in the investment bank
By increasing RWAs and leverage (and hiring some more traders), Throsby wants to set Barclays back onto the line below. Right now, it’s underneath.
6. Although there are still “cost efficiencies” to come in the journey to 10% return on target equity in the CIB
The only slight issue is cost-cutting. Although most of Barclays’ improved return on equity is supposed to come from capital redeployment and business growth, there will be some additional “cost efficiences” too. Throsby clearly has cash to to splash, but don’t assume Barclays will be too liberal at bonus time.