Barclays dealmakers face tough turnaround

LONDON: Barclays Plc chief executive officer C. S. Venkatakrishnan says his investment bankers who advise companies on capital raising, deals and debt issuance have fallen behind their counterparts in the trading division when it comes to the company’s efforts to boost returns in the coming years.

The bank has been trying to improve a measure of profitability that showed the ratio of income to risk-weighted assets.

While the firm’s traders have been able to keep that metric largely stable even as they consume more capital, the investment banking division has struggled amid a dearth of deals and underwriting activity.

“We have two divisions at slightly different stages in their journeys,” Venkatakrishnan said at an investor conference hosted by Morgan Stanley.

“Our markets business is strong and has had very deep client penetration, especially in fixed income,” he said, noting “banking is a stage behind and it is a bit harder”.

The firm’s investment banking arm has long focused on debt underwriting, which is a more capital intensive business than advisory services or equity capital markets, Venkatakrishnan said.

Rejiggering that mix is part of what he’s looking to change as he seeks to improve the firm’s return on equity (ROE).

“The parts where we need greater ROE efficiency is investment banking fees, there we are much more debt capital markets heavy than the US banks are and that’s where we’ve got to be more efficient,” Venkatakrishnan said.

Barclays generated £1.96bil in investment banking fees in 2023, a 12% decline from a year earlier.

Revenue from debt capital markets contributed almost 60% of that haul.

The remarks come just weeks after Barclays achieved a return on tangible equity of 9% for 2023 and vowed to get that metric above 12% in 2026.

To do so, the bank said it will go on a major cost-cutting drive and reorganise its reporting structure while returning at least £10bil to shareholders in the coming years.

As part of those changes, Barclays appointed Adeel Khan as the sole head of the markets business, while Cathal Deasy and Taylor Wright continue to lead the investment banking division.

All three bankers now sit on the bank’s executive board.

Beyond the cost-cutting measures, Barclays is also betting a pick-up in dealmaking and capital markets fees will help it achieve its new return targets.

If that doesn’t materialise, the company’s already earmarked a portion of £1.7bil of expenses that can be cut if the merger environment doesn’t improve, Venkatakrishnan said.

“We’ve also got cost projections which are based on that revenue,” Venkatakrishnan said.

“There’s a £1.7bil cost impact, some of which is related to performance fees. So if you don’t get the revenues, those performance fees will reduce.

“So there is a bit of a hedge in there.” — Bloomberg