Barclays loves the people in its investment banking division (IBD). They are the people whom Tom King, head of the investment bank, says work in "integrated origination verticals where businesses work synergistically together." They are the future - not that King, an M&A banker himself, is biased.
How is it, therefore, that the favourites at Barclays' Investment Bank, the IBD professionals at the beating heart of its new strategy, had such a bad time in the past three months?
In its first quarter results, announced today. Barclays' revealed that revenues across its IBD business rose by a mere 4% year-on-year. Advisory (M&A) fees aren't broken out specifically, but Barclays said they fell in the first three months. To put this into perspective, advisory revenues at Deutsche Bank increased 36%; at Bank of America and Citigroup they rose by 51% and 70% respectively.
The 'integrated origination verticals' don't seem to be working harmoniously after all.
How about equities, Barclays' other preferred business area? That doesn't look too happy either. Equities revenues at the British bank only rose by 5% year-on-year, compared to a 31% increase at Deutsche and similar increases at Goldman Sachs and Morgan Stanley.
So who did do well? Try rates and FX professionals, whom Barclays finance director Tushar Morzaria admitted have had their headcount and capital allocation reduced by a "sizeable amount" in the past 12 months? They delivered a 13% year-on-year revenue increase.
At the risk of stoking Barclays' geographical rivalries, it's worth pointing out that Barclays' under-performing IBD business is centered in the US. By comparison, the stronger-performing macro business has historically been seated in London.
Whether you work in London or in New York, costs at Barclays investment bank are being squeezed. Targeting a 12% return-on-equity across the cycle, in the first quarter Barclays only achieved 9%. Morzaria said bonus accruals were cut in Q1 to help achieve a 9% reduction in operating costs. However, the decline in sterling is counteracting Barclays' cost cutting efforts. "Weak sterling is inflating our cost base," said Morzaria. "- If cable continues to weaken that is going to put a lot of pressure on us."
If the pound continues to fall, Barclays' under-performing US M&A bankers could be in for a shock.