Barclays won’t let pay row deflect it from broader goal
BARCLAYS Bank’s objective to have an investment banking operation as successful in equities and advisory as Deutsche Bank or any of the other bulge bracket firms is constantly being questioned, both by rivals and by analysts and shareholders.
Some say the bank will bottle it as costs get out of control; others say that franchises have already been built up so solidly by rivals that it is virtually impossible to break in.
So last week, as the bank faced mounting controversy over the pay awards to some of its top executives, but most notably CEO Bob Diamond, some shareholders questioned the bank’s strategy, asking whether it would not be prudent to retreat a little in the grand design to focus once again on the retail banking operation where the tendency for huge bonuses is far less.
On the investment banking side Barclays has always been strong in fixed income, currencies and commodities trading (FICC); it is on the equities side, where there is more media focus, that it is trying to catch up with its rivals.
To this end it bought Lehman in the US after the crash and in Europe has been recruiting heavily, most recently poaching the Bank of America Merrill Lynch head of corporate broking in the UK, Mark Astaire.
In its first quarter results announced last week, income from the investment banking business rose three per cent, on strength in the perennial favourites: debt, currency and commodities trading. The equities business fared less well, with some services such as equity underwriting continuing to face pressure from the economic troubles in Europe. Barclays has massively increased its presence in M&A advisory, rising to fourth in global and third in Europe, Middle East and Africa (EMEA), according to Thomson Reuters, but in a quiet market that doesn’t always translate into profits.
If the market for corporate activity does fester, with the feared renewal of Eurozone troubles, Barclays will continue to be saddled with high head-count costs during a period of slack business. But it will be sheltered somewhat by the fact that most remuneration packages will be flexible and therefore lower if business doesn’t take off.
Whatever the concerns, as long as Diamond is involved, my view is that Barclays will not be deflected from pushing on with its investment bank ambitions.
Like the captain of the team he supports, John Terry at Chelsea, Diamond is known for fighting ever harder when he is most under pressure. He is not one for turning.
OIL PLOT THICKENS
IN the past few weeks a number of financial advisers have been presenting the case for the chance to advise Ruspetro, the Russian oil group that floated in London at the beginning of the year.
Since the January IPO, the shares have risen 57 per cent and the company, which might need some financial restructuring in the near future, is seen as one with growth potential.
Bank of America Merrill Lynch, which advised on the float, is fighting hard to get a broking mandate. But it is facing tough competition from RBC, Barclays, Credit Suisse, Jefferies Hoare Govett and Mirabaud.
david.hellier@cityam.com
Follow me on Twitter: @hellierd