Would you go and work for Barclays investment bank now? It’s hiring. In an interview with Institutional Investor Magazine, Tom King chief executive of the unit, says he’s recruited 19 senior corporate financiers for Barclays since May. “When I joined Barclays, I saw a once in a lifetime opportunity to build a corporate finance business,” King declares.
Armed with Barclays’ ‘big boy cheque book’ (in the words of Skip McGee, the ex-head of Barclays’ US business), building a corporate finance business at Barclays is clearly what King is about. The only problem is, things aren’t going to plan.
Barclays’ third quarter results, out today, reveal that the UK bank is bucking the trend when it comes to corporate finance fees. Year-on-year, its investment banking fee income fell 22% in the third quarter. As Bernstein Research analyst Chirantan Barua points out, this doesn’t compare well with Goldman Sachs (up 26%), with Citigroup (up 32%), with Credit Suisse (up 28%), with Deutsche Bank (up 28%), or with JPMorgan (up 2%). To put it simply, Barclays has been going for it in corporate finance. And it has been losing market share.
So, which area of Barclays’ investment banking business is actually growing? It’s not equity sales and trading and prime brokerage, another of Barclays’ favoured groups under King’s strategy (revenues down 25% year-on-year in the third quarter, versus an increase of 14% at Citigroup, of 1% and Deutsche and falls of just 1%, 2% and 8% at JPM, Credit Suisse and Goldman respectively), No, it’s macro products. – Precisely the area that King promised to de-emphasize. Here, revenues were up 3% year-on-year, thanks to increased volatility in FX.
Based on the third quarter, therefore, Barclays seems to have made a wrong call.
Of course, the bank offers an explanation for why King’s corporate finance idyll hasn’t quite come about. It’s partly down to exchange rate effects – the U.S. corporate finance business has done far better when its numbers are reported in dollars rather than pounds. It’s also down to the dark pool fiasco, apparently. During the call today, Barclays said U.S. clients in particular stopped trading with it after concerns were raised about occupants of its dark pool in June. The corporate finance business appeared to suffer a collateral impact – following strong growth in the first half of the year, clients dropped away in the wake of the dark pool revelations. But now clients are plunging back into the dark pool, and they should re-engage Barclays for corporate finance mandates too.
Barclays’ bankers’ pay
Barclays’ investment bankers will hope that revenues make a comeback. As things stand, 2014 is unlikely to be a great year for pay. Following the miserable third quarter, there was talk of reducing the level of deferred bonuses for 2014 on today’s call. This would suit Barclays’ well – for the first nine months of the year, costs ate up 78% of revenues in the investment bank. This was up from 69% last year, and far higher than the 65% limit once set by Bob Diamond. Redundancies and restructuring are reportedly to blame, although Barclays didn’t disclose how many more of its 7,000 desired investment banking redundancies it’s achieved since it said it had laid off 2,700 people back in September.
Barclays’ senior investment bankers may not be too put out by any reductions in their bonuses anyway. On today’s call, Barclays disclosed that it’s spent £150m on ‘role-based pay’ so far this year. That pay will be directed towards Barclays’ ‘Code Staff’, of whom it said in its 2013 annual report that it will have around 1,350 in 2014. This suggests that Barclays is paying each of its ‘code staff’ an average of £111k to compensate for the EU’s cap on their bonuses. That’s fine if they’re bringing in fees. It’s not so fine if they’re not.