Barclays Capital: Big risks remain in FICC
Behind Jerry del Missier, Rich Ricci and Bob Diamond, the three men most renowned for building Barclays Capital, there is another cadre of long-standing members of the same executive team with lesser public profiles. French national Eric Bommensath, head of FICC and head of EMEA trading, joined Barclays Capital from Bankers Trust in the dark days of 1997 as head of derivatives. Now he wrestles with an uncertain outlook for the businesses he heads. He echoes Jerry del Missier in expressing surprise at the extra capacity rival banks rebuilt in 2009 and 2010 after the long period of innovation and growth in FICC had come to a brutal stop in 2007 and 2008.
"Banks can do certain revenue-generating trades today that will require additional capital going forward as regulatory changes are implemented"
"If there had been no significant regulatory change then you might say that whoever came out of this period with scale in FICC would be OK and that whichever firms didn’t have scale would suffer. But there has been enormous regulatory change and it is not so simple." Given the over-capacity, it’s safe to say Bommensath is happier sitting on top of a FICC flow monster that has already been built rather than trying to build one now.
What clouds the picture for outside stakeholders – investors in bank stocks trying to gauge likely returns and risks, customers trying to assess banks’ capacity to stay the course – is that the FICC businesses still offer abundant temptation to book big upfront revenues that also bring with them big tail risks. Bommensath says: "Banks can do certain revenue-generating trades today that will require additional capital going forward as regulatory changes are implemented, eg, clearing and Basle III."
If, for example, a bank does a non-collateralized swap today, that might bring an immediate boost to its P&L.