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Right now is “the most exciting time at Barclays since I’ve been here,” says Reid Marsh, head of banking for Europe, the Middle East and Asia. There is a “commercially aggressive spirit”. The bank is “playing offence”.
And Marsh should know. Since returning from Asia in late 2017 to add Europe to his remit, his areas of responsibility have been where some of the most exciting of those developments have been happening.
Barclays began 2018 with something of a regulatory overhang as chief executive Jes Staley awaited the verdict of the UK’s Financial Conduct Authority into his involvement in a whistleblowing case at the bank. But by the end of May that was all over. Fined but not fired, Staley could refocus on the business of running the bank for its first “clean” year after the running-down of its non-core division and the disposal of its Africa business.
So how did that go? The simple answer is pretty well. By the end of the third quarter, pre-tax profits were up 23% excluding conduct and litigation costs. The bank has set return on tangible equity (ROTE) targets of above 9% in 2019 and above 10% in 2020 – its annualized ROTE for the first nine months of 2018 was just above 11%.
When Staley joined as chief executive at the end of 2015, the messaging was about the new transatlantic focus for the investment bank, coupled with a UK consumer and corporate bank. That was in part a desire to be seen to be more focused than the scattergun approach that had preceded it, but also a recognition of the reality of where the firm’s strengths lay.
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| Jes Staley |
The bank is top ranked in UK advisory and now ranks fifth in combined US and UK advisory. More strikingly, it is now the leading European banking franchise in the EMEA region, ranking fifth behind US rivals for M&A, ECM, DCM and leveraged finance fees. Those at the firm are convinced that European corporate clients are demanding a globally relevant non-US investment banking partner. And Barclays is the biggest European bank in the US market – not for nothing has it been on nine of the 10 biggest Yankee bond offerings this year. But some of the most promising work at the firm in 2018 has come elsewhere. Under Marsh’s oversight, the bank has put a focus firmly back on to building its continental Europe franchise in certain areas – not in retail, where it has spent the last few years withdrawing, but in corporate and investment banking.
This is certainly still a work in progress, but, speaking after a year of busy hiring, Marsh reckons the platform is now broadly in place.
“Since my arrival we have been focused on filling the gaps in sector and product coverage – this year we hired or internally transferred nearly 20 senior bankers to the EME [Europe and Middle East] banking team,” he tells Euromoney. “My focus next year is on management of that talent and developing more collaboration. We are right-sized for the opportunity now.”
Improving collaboration means two things in particular; one is a closer alignment of the country coverage bankers with their sector specialist colleagues across the continent. When Euromoney talks to Marsh, he has just kicked off a project to foster this, by evaluating where country bankers tend to end up mostly focused on one or two sectors and finding ways to use that sector expertise that they accumulate elsewhere.
The bank hopes that this kind of work will help it strengthen the other obvious area for improvement in continental Europe – equity capital markets. The bank is dominant in UK ECM but has struggled for many years in assessing how best to grow in Europe. After all, it only started building its secondary equities business in 2010.
Progress over the last year has been remarkable. In terms of growth Barclays has outperformed the competition, with a 31% increase in its overall equities revenues for the first nine months of 2018. Over the past 18 months the bank has hired about 50 new analysts with a view to increasing not just the quantity but the quality of research. Tom Johnson, the bank’s EMEA head of ECM, says the bank’s objective is to be “one of the post-Mifid winners”.
The elephant in the room for Barclays is Brexit and, although the bank feels well-prepared given its work at bolstering its Irish hub, it is cautiously paring risk in some areas. Staley spoke during the year of being cautious on UK credit cards and moving to stricter loan-to-value standards on UK mortgages. The bank has also cut its UK leveraged loan exposure by 25% over the last two years.
It is consciously building up consumer exposure elsewhere, however. Having spent time in recent years cutting this back in continental Europe, the bank is deploying the opposite strategy in the US. It already has nearly $15 billion in retail deposits there but is determined to build out its consumer offering further, and is set to launch a digital-only current account in 2019.
