Bernstein banking analyst Chirantan Barua has a history of calling it for Barclays. In April 2014, he suggested 30% of staff at Barclays’ investment bank needed to be made redundant, something which was duly announced in May.
Now Barua’s at it again: he thinks Barclays’ ex-Lehman bankers in the US have nothing to gain from their European parent and need to go it alone. This is why.
1. Barclays’ ex-Lehman US investment banking business is like a hermit crab with an ill-fitting shell
Barua says it’s, “a US investment bank inside a UK retail bank regulated by both the Fed and the Bank of England”. That’s doesn’t work and will always be bad for the share price.
2. Barclays’ US business fits none of the successful investment banking models
“At Bernstein, we see only three successful business models for investment banks – ones that are prime brokerage led serving the institutional investor community (GS), ones that feed off HNWI flows (UBS), or ones that are flow monsters (your ex employer),” says Barua. “Where does Barclays fit? It doesn’t have a credible transaction bank for flows or a wealth management unit.”
3. Barclays’ US business cannot be Goldman Sachs
Without a credible transaction bank or wealth management unit, Barua says Barclays’ ex-Lehman business is trying the prime brokerage route of Goldman Sachs and is destined to fail: “That can’t be done based in the UK by underpaying staff, cutting repo and sec lending books, and juggling politicians and regulators.”
4. This is the perfect time to carve out the US business!
Barua says the Fed’s already pushing Barclays to ring fence its US operations with, “separate capital, liquidity and funding structure”.
“Why don’t you use this ring-fencing exercise in the US to carve out the Investment Bank (barring a plain vanilla FICC franchise to support UK Commercial) with an independent management team / board, running up to an IPO in 2020/21 to time the next bull market?”, he suggests, adding that the extra $5-6bn of incremental capital that will be needed could be raised by selling the US cards franchise.
5. If the US business is standalone and there’s the prospect of an IPO, all sorts of people will want to join
“You can almost use the currency of a future listing to incentivise a new set of talented managers at the top (this year will be quite good for recruiting if the markets stay the way they are at the moment),” says Barua.” It’s time to make a bold call…The US can surely take a third pure-play broker dealer!”