| Barclays Capital's bond underwriting position |
| All international bonds, 1996 |
| Pos. |
Manager or Group |
Amt US$ m |
Iss. |
%Share |
| 1 |
Merrill Lynch & Co |
76,289.26 |
314 |
10.77 |
| 2 |
SBC Warburg Dillon Read |
57,567.85 |
269 |
8.13 |
| 3 |
JP Morgan |
57,346.58 |
212 |
8.10 |
| 4 |
Morgan Stanley & Co Inc |
50,675.24 |
267 |
7.15 |
| 5 |
Goldman Sachs & Co |
50,085.31 |
122 |
7.07 |
| 13 |
BZW |
22,817.02 |
89 |
3.22 |
| All international bonds, 1997 year to November 28 |
| Pos. |
Manager or Group |
Amt US$ m |
Iss. |
%Share |
| 1 |
Merrill Lynch & Co |
77,172.00 |
320 |
11.00 |
| 2 |
JP Morgan |
64,982.99 |
198 |
9.26 |
| 3 |
Goldman Sachs & Co |
63,363.75 |
136 |
9.03 |
| 4 |
SBC Warburg Dillon Read |
57,323.07 |
219 |
8.17 |
| 5 |
Morgan Stanley & Co Inc |
52,436.43 |
317 |
7.47 |
| 13 |
BZW/ Barclays Capital Group |
23,040.09 |
83 |
3.28 |
| Robert Diamond took charge of global markets at bzw in June 1996. Success has not followed overnight. |
Now that the high profile equity and corporate finance advisory parts of BZW have been sold, members of the surviving debt markets division, Barclays Capital, have a tricky time ahead. They must convince their customers that the advantages of dealing with a fully integrated investment bank - advantages which they loudly proclaimed for the 11 years in which Barclays spent £750 million ($1.2 billion) trying to build such a creature - are bunk. Now they must argue that the best type of investment bank to deal with is one focused on its chosen strengths. But the question persists: does Barclays Capital have any strengths beyond sterling bonds and syndicated loans? Even while peddling their new line, those at Barclays Capital must privately question how deep is their own parent's commitment to its new-form investment bank.
On the one hand, the answer should be obvious: "It would be much easier to sell BZW together rather than as two separate businesses," says Robert Morrice, managing director and head of credit business in Europe. "It's too complicated to be part of a two-tier sell-off." On the other hand, rumours persist that Barclays Group chief executive Martin Taylor was planning to sell the whole of BZW, apart from the treasury operations necessary for a commercial bank, and that Robert Diamond, formerly head of markets at BZW and now chief executive of Barclays Capital, returned from this year's IMF meetings in Hong Kong with a mission to dissuade him. Both men deny it. Diamond says he was aware of Taylor's plans to sell the equities and advisory divisions before he left for Hong Kong; Taylor asserts that he never intended to sell the markets division.
Diamond, and the team of bankers he has assembled around him, now face the challenge of having to convince clients, and sceptical rivals, that the new construct is not just viable, but groundbreaking. "It's a contrarian view to decide not to offer services in all areas of investment banking," says Diamond. "But it's also innovative. We don't want to be everything to everyone, but to excel at what we do offer."
By this summer, Diamond had already completed the first phase of turning the markets division around, having sacked 500 and hired around 350. "I didn't tread lightly," he says. "And I wasn't asked to." He can now concentrate on developing the franchise. In doing so, he freely admits he is taking some bets: "We're convinced that Europe is the story to put our resources into. We expect to see an explosion in the credit markets there, and are positioning ourselves to reap the benefits."
In August Diamond recruited Joe Bencivenga from Bankers Trust, one of the big high-yield houses in the US, to run the department. But Barclays Capital lacks the corporate coverage, and has yet to expand on its core client group of governmental and financial institutions. So Diamond's bet appears to be based on the firm's strengths in the UK, something he portrays as an advantage: "Outside of the US, this country has the most developed corporate bond market in the world, and our aim is to leverage this expertise as the credit markets expand in Europe."
BZW/Barclays Capital has been promising to expand beyond its sterling franchise for years, without success. Sovereigns, supranationals and financial institutions have been the staple diet for the debt issuance group, with little sign of them breaking into the corporate debt market. A senior manager at a part of BZW which has been sold to Credit Suisse First Boston is unconvinced that his former colleagues will be able to make that move: "Martin Taylor and Bob Diamond must be deluding themselves. Which group is it which has done all the foot-slogging in Germany and Italy to get our name on the map? They're all in NewCo [the part of BZW which has been sold to CSFB]." It is a view many of his colleagues agree with. "I would not underestimate the strength of reaction among European corporates," says another. "Many of our German clients simply don't understand the logic behind the decision to sell, and this could have a knock-on effect on Barclays' ambitions there and the rest of Europe."
Nevertheless to show his commitment to expanding beyond the sterling-based franchise, Diamond lured Roman Schmidt away from his position as head of the Euro-Deutschmark syndicate at Deutsche Bank. BZW's franchise in Germany was quite limited. Although a major player in the domestic Schuldschein market (and in the top three in structured Schuldscheine), it had made little penetration into the more visible markets. Since joining, Schmidt has tried to change that. Barclays Capital is now, for example, an official market-maker in the jumbo Pfandbrief market, and has been bookrunner on six deals so far. Schmidt says: "It's our aim to be one of the top foreign bookrunners in the Deutschmark market." The new team now boasts a newly enlarged trading group and has been lead manager on 12 Deutschmark deals since June. Whether that is enough to launch Barclays Capital down a path to success is another matter.