Chief executives come and go at Barclays but one debate remains the same: can the bank make decent money from investment banking consistently? The question has been asked for 20 years, in which time Barclays has had seven permanent chief executives and two stand-ins.
The debate has burned most fiercely since the wild risk-taking of the early and mid-2000s turned out horribly (except for the lucky employees who had bagged their bonuses). Jes Staley, a JP Morgan veteran who has packed Barclays’ senior ranks with fellow ex-Morganites, was supposed to be the boss who would show shareholders the way to healthy returns from investment banking in a world where regulators rightly insist on fatter capital cushions.
Staley declared that Barclays’ investment banking unit, after its post-crisis tactical retreats from some activities, would not get any smaller. It would be a core part of the group’s rebirth as a “transatlantic consumer and wholesale bank”, freed from its continental European retail distractions and its capital-hungry African operations.
The clearing of decks has happened, so how’s the investment bank shaping up? Not so well. Nobody expected knock-out numbers because even the big Wall Street houses report sluggish market conditions. Barclays’ figures, however, were even weaker than forecast. Trading income was down 14% after nine months of 2017, with the third quarter being considerably worse.
Barclays’ shares fell 6% and now trade at just two-thirds of book value, suggesting investors’ faith is flagging. To try to raise spirits, Staley finally set some hard financial targets for the whole group – return on equity will be 9%-plus in 2019 and 10%-plus in 2020. Both would be a big advance on the current 5.1%. But, to get there, the investment bank needs to bring in more revenue – it still accounts for about half of Barclays’ assets. It’s not happening currently.
There is, of course, a fair argument that Barclays would be in a messier state without its investment bank: diversification helped the UK retail bank pay all those PPI compensation bills. And there’s little point abandoning Staley’s strategy after only two years if the first prize is meant to arrive in 2019. But, for those who have watched Barclays’ long struggles with its investment bank, a sense of deja vu is already creeping in.
This article was written by Nils Pratley, for theguardian.com on Thursday 26th October 2017 14.54 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010