Is Barclays' investment bank in danger of serious upheaval if Britain leaves the European Union? Chirantan Barua, banking analyst at Bernstein Research, thinks so.
In the event of a Brexit, Barua predicts that investment banking fees will plummet globally (not just in the UK), by more than 30%. The ensuring uncertainty will cripple deal-making, suggests Barua, adding that activity is unlikely to pick up until after the U.S. presidential elections and that the down-cycle may continue well into next year.
If Barua's right, this looks like bad news for anyone working in M&A in London or New York. As we've noted previously, most banks added headcount to M&A businesses last year as deals increased. As activity falls back, they suddenly look over-staffed.
No bank is more exposed than Barclays, says Barua. Under CEO Jes Staley, Barclays' strategy is to become a transatlantic investment bank, focused on the U.K. and U.S. markets - the two countries which could be in for the toughest 2016. Worse, Barclays' retail bank is highly exposed to the U.K. residential property market, which Barua thinks could collapse if Britain leaves the EU.
"Simply put, Barclays has the highest gearing to London in terms of their UK portfolio. It also has the highest gearing to investment banking revenues which we believe are going to tank," he says.
Barclays' stock is already down 26% since the start of this year. If Britain leaves the EU, Barua predicts it could fall further and that - in the worst case scenario, that the bank could even be forced to raise further capital. Redundancies would likely ensue: Barclays already cut headcount in its investment bank by 6,000 people from its investment bank in the first four months of 2016 - mostly from failing to replace people as they left, but under Barua's scenario the bank would almost certainly need to be more aggressive.
Fortunately, not everyone agrees with Barua's dire prognosis. Chris Hughes, a columnist at BloombergView, points out that if the pound plummets post-Brexit, it could unleash a wave of M&A as international firms look to buy up U.K. companies cheaply. Will your M&A job be safe after a Brexit? It all depends how optimistic you are.