On May 8th, Barclays will unveil yet another change to the strategy for its investment bank. Analysts are already trying to decipher the shape of things to come. Chirantan Barua, senior analyst at Bernstein Research in London thinks he has seen the future. Ominously, Barua's vision involves 6,500-7,500 jobs being cut from the investment bank, or 25%-30% of the total.
How realistic is this? Barclays isn't commenting. Off the record, senior Barclays insiders say it's, "exaggerated." "We're expecting significant cuts in some fixed income businesses, but areas like cash equities and investment banking should be unaffected," says one. "This is just analyst chatter," says another, "Nothing's been finalized yet and you will get a lot of analysts coming out with these kind of notes in the run up to May 8th."
Nonetheless, Barua's case seems well argued. He points out that while income at the investment bank fell by 25% between 2010 and 2013, costs fell by only 13% and full time employees rose by 6%. Barclays employs around 26,200 people and Barua points out that many are based in the floundering fixed income currencies and commodities (FICC) business, which has been replaced by the equities business as the driver of profits. Barua argues that 5,000 people need to go from the EMEA-based FICC business alone. 2,000 need to be cut from elsewhere. Long term, he says this would save £1bn a year in costs. Overall, most of the cuts should happen in Europe.
Barua's points are made more forcibly in a series of charts at the bottom of this article. Like Barclays' insiders, however, rival analysts are unconvinced. "It's an attention-getting number and it seems very high - it would be difficult to continue running the investment bank in those conditions," says one, speaking on condition of anonymity. "I do think they need to make substantial cuts, but I think you're looking at more like 4,000 to 5,000 over the next four years," says another.
Barclays is already cutting from its commodities business. It's also said to be slimming back equity derivatives and merging its credit, equities and macro sales teams to better serve hedge fund clients. However, this looks like tinkering. The commodities business only employs 160 people across sales, trading and research and headhunters say the equity derivatives sales team has already been hollowed out since it was built up by Yannick Mallegol in 2010.
Barclays doesn't break out how many people it employs in its fixed income business. Nor does it say how many people it employs in each jurisdiction. Barua estimates that the bank currently has around 9,000 in the U.S., 16,800 in Europe and just 400 in Asia. According to one senior ex-Barclays banker, the vast majority of these employees are in middle and back office roles. "Barclays is an investment bank with 26,000 people of whom only around 7,000 are client-facing," he claims.
Chris Wheeler, a banking analyst and director at Mediobanca, says 7,000 job cuts would be extremely difficult to effect quickly at a bank like Barclays. Its heavy fixed income focus means Barclays will need a lot of administrative staff for the foreseeable future, argues Wheeler: "If you are going to make a major change in strategy, you don't move your middle and back office people out the door - the need to stay around to deal with compliance issues and to process the inventory." The flip side of this is that Barclays may be pushed into cutting high-cost front office FICC people as soon as possible.
"VPs and assistant VPs are trying to get out - they've lost their sponsors"
For the moment, headhunters say it's very easy to pull people away from Barclays. "It's not a good vibe there," says the head of one fixed income boutique in London. "They've already cut a lot of managing directors and vice presidents and assistant vice presidents are trying to get out - they've lost their sponsors and feel exposed."
Barclays' US-based investment bankers look safest. The U.S. ex-Lehman business is more focused on the profitable areas of equities and investment banking. As we reported yesterday, the insertion of a new layer of management below Tom King and Eric Bommensath seems to have skewed power in favour of the U.S. business. And yet, as other banks de-layer management, analysts observe that Barclays' re-layering looks curious. There have been rumours that King and Bommensath are due to be removed. "It looks like they're building a stronger team beneath them," says one analyst.
In their last presentation on the future of Barclays' investment bank, back in July 2013, King and Bommensath promised to offshore 4,000 jobs, to cut duplication in control roles, to keep a lid on pay and to become leaner and more efficient. As the chart below - taken from King and Bommensath's historic presentation, reveals, the bank had been extremely loathe to cut fixed income sales and trading headcount up until that time. More recently, Barclays has cut some FX sales staff and traders, while others have left of their own accord, but the overall FICC franchise remains largely intact. That could be about to change. And if Barua is right, it could change very dramatically.
Headcount reductions in Barclays investment bank, as reported in the last strategy presentation in July 2013
Source: Barclays, July 2013
Where the cuts could come at Barclays...
Source: Bernstein Research
Barclays has been adding staff, but trying to keep costs down...
Source: Bernstein Research
Barclays has been staffing-up with people on £100k-£250k...
Source: Bernstein Research
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