For the growth of Barclays’ investment bank has been one of the big changes in the sector over the past few years.
Barclays has come from nowhere to become a major force in European and US investment banking.
Barclays was the only UK-based bank involved in the Facebook flotation last year; it is one of the key banks involved in floating housebuilder Crest Nicholson; and when two giant media deals fell out of the sky earlier this week, the $24bn buyout of Dell and the $23bn bid for Virgin Media, Barclays was involved in both. Also in the UK, Barclays is working on the possible privatisation of the Royal Mail, which, if it goes ahead, will be a big deal complete with a substantial retail offering.
All of this increasing involvement from Barclays has come at the cost of rivals’ market share so they will be watching next week for signs that Jenkins, who outlines his strategy on Tuesday, is preparing for some sort of retreat.
There is no doubt he will signal the exit from some risky activities where he feels the reputational and financial risks of being open for business outweigh the benefits. Some predict that up to 15 per cent of the investment bank’s 23,300 employees will be seeking new employment over the next few months. It is also true that Barclays invested heavily in the past to build up an investment banking business, BZW, only to shut it down 15 years ago.
Those who were guests at a dinner with Jenkins in Davos believe he has no intention of abandoning the investment bank altogether. “He gave an impassioned defence of it,” said one Davos dinner guest.
It is easy to see why Jenkins is so keen to keep the investment bank. According to Ian Gordon of Investec Securities, the part of the bank built up by former chief executive Bob Diamond will contribute roughly half of all group earnings by 2015.
And with costs coming down due to a reduction in headcount and compensation (bonuses will be down), the bank and bank analysts are hoping for a significant improvement in the return on equity ratios.
Gordon says Barclays is well-placed to continue its market share gains as other banks, like UBS, retreat from areas liked fixed income. “It would be foolish to butcher a business that stands to gain so much,” he says.
But if Jenkins is going to pull off the difficult task of not only keeping the investment bank alive but also nourishing it at a time when costs are being brought down, he will need to convey two very different messages. To the outside world, he will continue to talk about shredding legacies and changing cultures.
But internally he will need to recreate more of Diamond’s winning culture if he is to keep the car on the road. That won’t be easy if variable pay, which incentivises high performers, is too constrained.