Barclays is under pressure to make big job cuts
So, it turns out that the Barclays' restructuring plan concocted by Boston Consulting isn't just about cutting a load of back office jobs after all. The Financial Times today says that something is afoot with the corporate and investment bank. If you work for, or are thinking of working for, Barclays, you should pay careful attention.
Most notable is the FT's claim that Barclays' corporate and investment bank (CIB) has been told to come up with a plan for generating returns of between 14% and 15% on a sustainable basis.
For anyone not familiar with Barclays' CIB, these are the returns there since 2015:
In other words, in the eight years since 2015, Barclays' corporate and investment bank has only once achieved the return on equity now being demanded of it: in 2021, during the heady, unnatural, days of the pandemic.
Generating consistent 14%-15% returns is therefore not going to be easy. Anyone who remembers activist investor Edward Bramson and his plans for Barclays will remember that Bramson wanted to boost returns in the investment bank too. In August 2020, he wrote a letter suggesting the bank might want to do this by cutting risk weighted assets by 24%.
Bramson was unsuccessful and eventually sold his Barclays stake in 2021. This is what's happened to risk weighted assets (RWAs) at the corporate and investment bank since then (relative to the recent past) 🤯:
What has been occurring? Following Bramson's withdrawal, it looks a lot like Barclays has doubled down on its investment bank under Stephen Dainton, the former Credit Suisse guy who runs its global markets business. When Bramson disappeared in 2020, Dainton declared that far from cutting the investment bank in the style of Deutsche Bank and as advocated by Bramson, he was preparing to expand it. Moreover, Dainton said he was planning to expand in areas like structured products, which can be notoriously accretive of RWAs.
This might be why RWAs have increased by nearly £20bn in two years. It may also be why the FT says Barclays is now thinking of cutting £20bn of RWAs in the near future.
Barclays declined to comment for this article, but having built up the business, the FT says that neither Dainton nor his co-head of markets, Adeel Khan are keen cut it down again. Khan in particular, being an equities guy, isn't keen to lop off the cash equities sales and trading business in the style of Deutsche Bank in 2019. The FT says ideas have also been floated and rejected for cutting muni bond trading (in the style of Citi's considerations) and securitisation teams. However, equities and munis don't generate many RWAs and the securitization business (which does) is too linked to securitization financing to simply remove.
Instead, therefore, Dainton and Khan are reportedly going for the option of cutting up to 25% of Barclays' 10,000 clients in the belief that this will enable risk weighted assets to be cut without damaging more than 10% of revenues in the business.
Will this work? As a strategy it's not new - banks have been advised by consultants like McKinsey & Co. to focus on large clients and to cut operating costs for the "long tail" of smaller clients for much of the past decade. More recently, though, the focus across the industry has been more on trying to sell as much as possible to as many clients as possible using low cost platform solutions, as per the strategy at Goldman Sachs.
Something needs to be done. If Barclays is to generate consistent returns of 14%-15% without cutting RWAs, the FT notes that it will need to cut operating costs in the corporate and investment bank from 60% to around 55% of revenues. Year to date, this would imply a £580m reduction in costs, nearly 10% of the total.
Either way, the implication is that pay and jobs at Barclays' corporate and investment bank are going to be squeezed. Dealing with clients more efficiently usually means investing more in technology and less in human beings. In March, IFR reported that headcount in Barclays' investment bank had increased only very slightly since 2017 even as risk weighted assets soared. Instead, Barclays increased spending on technology by 40% during the period. Expect a lot more of the same.
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