Investment banking employees at Barclays look like they might be reaping the rewards of boss Jes Staley’s strategic commitment to the business unit. Barclays doesn’t break out salaries and bonuses from total costs in its results announcement, but the divisional cost/income ratio was 75% for the full year, compared to 76% last year. There’s not much sign there of an aggressive cost-cutting program of the kind that activist investors like Edward Bramson have been calling for.
Looking at the detail seems to confirm this view. Barclays tends to delay bonus decisions until it has a full year’s information, meaning that the fourth quarter costs are usually significantly higher as the bank “trues up” at the end of the year. This was the pattern in 2018, as Q4 costs were up 18% on Q3 while revenues fell 4%, taking the division to a small post-tax loss.
Comparing versus Q4 of 2017, both revenues and expenses fell by around 5%, showing that employees and shareholders are sharing the pain more or less equally; there’s no sign that the bonus pool was raided to help insulate group profits from market swings. The headline numbers also possibly understate the bonus environment too; across the group, the contribution from past year deferred bonuses was, expectedly, significantly decreased so this year’s cost number has proportionately more influence from this year’s awards.
Comparing to peers, you can see why Staley felt that his investment banking employees deserved a bit of credit. In US dollar terms, FICC trading profits were down 11% Q418 on Q417 (6% in GBP), compared to an average fall of 18% across the US bulge bracket. Equities trading was less stellar, up 4% in GBP and down 2% in USD terms vs +15% at US peers, but even this compares favourably to European investment banks in Q4; the advantage of having a strong home market was particularly pronounced in the quarter.
Barclays doesn’t break out its income into DCM/ECM/M&A, but IBD revenues were 3% up in sterling terms and 2% down in USD – with the big US banks having seen double digit falls in capital markets revenue offset by strong M&A, this also feels like a creditable comparison.
But in strategic terms, the Barclays investment bank is going to be judged by its divisional return on equity – that’s the number that goes into the forward-looking section of the investor presentation. At 7.1% for the year, this was up markedly from 5.7% last year, with rising market share in both FICC and Equities and a global top four ranking in DCM.
Barclays CIB is still not quite what you would call a star business unit – group RoE was 8.5% so the investment bank is dragging the group down slightly – but it now looks like it’s within shooting distance of the 10% target. The main takeaway from these results is that there is very little red meat for an activist investor wanting to shut the franchise down, and Barclays employees might be able to breathe a little easier.
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