Nearly two years ago Barclays chief executive Jes Staley was telling investors that the bank was finally what he wanted it to be. Its non-core assets had been run down and new management was in place in a host of business lines. At last it was a clean bank, freed of any legacy drag on returns.
A reorganization in early 2019 might have had the potential to disrupt that. Staley’s decision to split Barclays International into a corporate and investment bank and a global consumer, cards and payments business led to the departure of division head Tim Throsby, whom Staley had brought into the firm from JPMorgan to some fanfare in 2017.
In the event, however, the disruption was minimal – so minimal in fact, that it barely figures in the minds of bankers at the firm now. It certainly didn’t hurt the performance of the corporate and investment bank, which has since been impressive on many measures. The division’s profits rose more than 70% year on year in the third quarter of 2019. Banking fees were up 33%, making it the best third quarter ever.
Staley’s positioning of the bank as a transatlantic franchise has been backed up by its leading position in the UK and its top-five position in US investment-banking fee rankings – something that no other European firm manages – and now, given Deutsche Bank’s troubles, something that no other probably could.
“The performance of the corporate and investment bank has been solid, even remarkable, this year,” says Carlo Calabria, head of banking coverage in continental Europe and CEEMENA at Barclays. “We are delivering on what we promised.”
Calabria is at the heart of one of the more interesting areas for the bank, which has long wrestled with how far to push for growth in Europe while staying anchored to its transatlantic identity. He thinks the firm is on the right track in the region – and it was Euromoney’s pick for Western Europe’s best investment bank in 2019.
“A key objective in Europe in 2019 was to navigate the macroeconomic and political challenges facing the industry – and we have done well in that regard,” Calabria says. “The second was to grow share in Europe outside the UK – and that again is a tick.”
Calabria argues that it is the bank’s strength in the UK and US that enables it to compete in Europe more broadly.
“I feel like we have accomplished a lot,” he says. “In particular, we have defended our position in debt capital markets, where we are top three year-in, year-out; and we are in that position because we can be thought-leaders across all currencies, structures and maturities.”
And two areas where the bank has been less present in the region are improving.
“One thing we have done is work to replicate in Europe the strength of our leveraged finance practice in the US, where we are one of the leaders,” says Calabria. “It is building very nicely, and we are becoming one of the natural counterparties for sub-investment grade issuers in Europe.”
In equity capital markets too, mandates such as the IPOs of TeamViewer, Trainline and Nexi show that the bank is convincing issuers that its lack of a long track record in the asset class is no impediment to good execution, argues Calabria.
The two businesses are examples of how Barclays is bucking the trend seen at peers of reducing the scope of their franchise. And that is down to a firm belief among much of the bank’s senior management – and Staley himself – that the only sustainable approach to the business is one that is diversified. Staley and his team do not believe that it is possible to surgically remove a business line, like Deutsche has done with equities, and expect the remainder of the franchise to be unaffected.
As Staley told analysts when announcing third-quarter 2019 earnings, being a bulge-bracket investment bank in the US and Europe means that “you have to be across all asset classes, which includes equities”.
He added that the bank would stay “fully invested” in that business, particularly since it was well able to compete with US peers.
This belief in the full-service firm in a year when many European banks have continued moves to limit the scope of their franchises is increasingly differentiating Barclays.
Staley knows that he will be judged on his ability to translate the recent good growth in the corporate and investment bank into a meaningful and sustainable contribution to group return on equity. One assumes that struggles on that score were one of the factors behind Throsby’s departure.
In 2018, the division only posted a return on tangible equity (ROTE) of 7%, but in the first nine months of 2019 that had risen to 9.3%. At a group level, ROTE stood at 9.7% for the period and the bank is targeting 10% in 2020.