Barclays' investment bank blew past its targets, but not in the manner intended
When Barclays' CEO CS Venkatakrishnan presented his strategy for Barclays' investment bank nearly 15 months ago, he set some ambitious targets and made some bold plans for refocusing the business.
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Today that Barclays said those ambitious targets have already been met. Just not in the way that Venkatakrishnan wanted.
Barclays' 2023 performance targets for its investment bank involved a return on equity of 12% by 2026 and a cost income ratio of the 'high 50s.' In the first quarter of 2025, the investment bank's return on equity was an unprecedented 16% and costs were a mere 54% of revenues.
The job appears to have been done.
And yet, Venkatakrishnan is faced with a familiar problem in investment banks: the job was not done by the right people. Last year's strategy presentation laid out Barclays' intention of regaining market share in investment banking and "rebalancing" revenues towards equity capital markets (ECM) and M&A after a five-year period during which they'd been eroded. Barclays said it had added senior bankers for precisely this purpose.
During Barclays' groundbreaking first quarter, though, M&A did not look healthy. Barclays' M&A advisory revenues fell 3.5% year-on-year, compared to increases of 22% at Deutsche Bank and 17% at UBS. Barclays' ECM revenues were up 2.9%, which was good compared to falls at US banks' but not compared to Deutsche Bank's 18% rise.
So who did well at Barclays' investment bank in Q1? In today's presentation, the bank stressed its desirable pivot towards "stable" revenues from financing and its corporate bank (included in its investment banking division). It made less noise about contribution of less stable revenues in from its markets business. Fixed income trading revenues were up 21% thanks to "volatility and client activity" and to strong performance in macro and securitized products; equities trading revenues were up 27% when a one-off gain from selling shares last year was omitted. In total, markets revenues accounted for 69% of revenues in the investment bank, exactly the same as Q124...
As Barclays harvested revenues in sales and trading, there were signs of second thoughts about diverting assets away from the markets business. Last year's targets included an aspiration to reduce risk weighted assets (RWAs) in the investment bank to 50% of the total; in Q1 they were 56%. Market risk RWAs actually increased by £1.1bn and the trading book expanded by £1.4bn.
Barclays is afflicted by a problem that will be familiar to Deutsche Bank and Goldman Sachs: its traders are doing better than expected.
This may create problems as the year goes on. When will the newly-hired investment bankers - some of whom Barclays paid big money for - actually start performing? What if they don't? What if more bankers leave for UBS (there was another departure yesterday)? How will those who remain be paid? Rising returns in Barclays' investment bank in the first quarter were partly a result of a cost squeeze - operating costs were cut 5% while revenues rose 16%. That doesn't bode well for traders' bonuses at the end of this year, and that matters - even if Barclays would have preferred they did slightly less well relative to other areas.
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