When they came out last week, Barclays’ second quarter results for its investment bank were ok, but not great. Equities trading was bad and macro trading wasn’t all that special, and profits at ‘Barclays Corporate and International’ (as the investment bank is now known) were down 44%. We won’t know how RBS performed in the second quarter until its results are released on August 5th. In the meantime, however, the results to the European Banking Authority’s latest stress test suggest RBS might have a few things to recommend it over its British rival.
As Breaking Views points out, Barclays was one of a handful of ‘double losers’ in the EBA stress tests. Firstly, it ended up with a core tier one equity capital ratio of less than 7.5% as a proportion of risk weighted assets. Secondly, it suffered a fall in its core tier one equity capital ratio (CET1 ratio) of more than four percentage points when Basel III is fully applied. Alongside Barclays, only five other banks fell into both categories and they weren’t the industry’s most auspicious names (AIB, Bank of Ireland, Commerzbank. Monti dei Paschi and Raffeisen Landesbanken).
RBS didn’t exactly distinguish itself by comparison, but under the EBA’s adverse scenario for 2018 it ended up with a CET1 ratio of 8.1%, while Barclays ended up with a CET1 ratio of 7.3%. The EBA’s implication is both that RBS might be the safer place to work in a bad situation, and that Barclays can’t afford to pay dividends and needs to raise more capital, meaning its floundering share price (down 45% in a year) is unlikely to recover soon.
Do the EBA stress tests really matter though? Barclays seems to think not. In a statement on its website, the bank says its capital requirements are informed by the Bank of England’s stress test (results due later this year) rather than the EBA. More damningly, Barclays suggests the EBA is already out of date: its stress test results are based upon a point in time analysis of the bank’s balance sheet in December 2015, and don’t take into account strategic plans to raise capital through the disposal of assets like the African operation.
Separately, you can get away with denigrating banking if you used to be the Governor of the Bank of England. The Financial Times notes that Mervyn King, the former governor of the Bank of England, has quietly taken up an advisory role with Citigroup. This comes after King called bankers “incompetent and greedy”, and bemoaned the City’s attraction of talented graduates and “vast” pay packages “beyond the dreams of ordinary people.”
Deutsche’s plan for the investment bank by 2018 includes reducing client numbers by half and cutting risk-weighted assets by a net €28bn. Credit Suisse is cutting almost $60bn of risk-weighted assets from its investment bank, by comparison. (Financial Times)
Bryan North-Clauss, Deutsche’s head of US rates sales, has left the bank. He only joined in September (from Morgan Stanley). (Business Insider)
43% of daily global derivatives trades take place in the U.K. This is what’s really at risk under Brexit. (WSJ)
Ex-Barclays banker Tom Kalaris is opening Saranac Partners, based in London’s St James’s, as a private family office that also offers investment management, capital and financing advisory, structuring and fiduciary services. (Financial News)
SkyBridge Capital, the fund-of-hedge-funds firm run by Anthony Scaramucci, has opened a London office. (Bloomberg)
UK lawmakers can’t fathom Goldman’s business model: why did Goldman provide “varied and frequent advice . . . for no compensation” over a 10 year period? (Financial Times)
A bonfire of red tape is the last thing British bankers want. (Telegraph)
Senior (ex-)Deutsche banker’s lament: “At some point, the regulators need to make it plain when a bank has done enough surveillance and when the burden of responsibility has passed to the employee alone.” (Euromoney)
How to get hired by a hedge fund: “You should have good ideas, they don’t have to be regular.” (WiLOW Wall Street)
Average pay for US Olympic athletes? $16k. (Washington Post)
Why your boss hates you. (James Altucher)
Citi employee knocked out 90% of bank’s computer systems after being challenged about his performance. (Finextra)
Former hedge fund trader opens Moomin theme park. (Bloomberg)
Photo credit: 79 – 83 Colmore Row – RBS – Royal Bank of Scotland by Elliott Brown is licensed under CC BY 2.0.b