Wednesday, 25 April 2018

Retail-isation of Barclays continues

News on Tuesday that Barclays had acquired the deposits, mortgages and business assets of consumer bank ING Direct UK, subject to regulatory approval, is consistent with the marked attempt to rebalance the group away from investment banking since retail banker Antony Jenkins took over as CEO.

IFR Editor-at-large Keith Mullin

IFR Editor-at-large Keith Mullin

Through the acquisition, the bank picked up £10.9bn (around US$17.5bn) of deposits at par along with a £5.6bn mortgage book at a 3% discount.

With customer deposits of £113.9bn (US$182bn) as of June 30, the acquisition certainly isn’t a game-changer for Barclays in a numbers sense.

But it comes a little more than a week after Jenkins stacked the group executive committee away from investment banking by splitting his old retail job into two and appointing both incumbents (Valerie Soranno Keating, CEO of Barclaycard; and Ashok Vaswani, former CEO of UK Retail and Business Banking now responsible for retail and business products and services) to the group ExCom.

That’s certainly a radical transformation from Bob Diamond’s ExCom, which had himself, Rich Ricci and Jerry del Missier from the investment bank in the inner circle. To my way of thinking, that was about right since the CIB division made and continues to make the majority of group profits.

Since taking over, Jenkins had made broadly positive noises about the importance of the investment bank. But when he appointed Soranno Keating and Vaswani, he said the changes “reflect the importance of our retail businesses for Barclays and will make for a better balance between business and functional representation on the Executive Committee”.

Streamlining is one of those ominous words that are invariably used as a codeword for cutting

I don’t know about better balance: of the four global business-line heads on the 10-strong committee; two hail from the retail and business banking side (sharing 41.5% of revenues and 38% of pre-tax profits between them using interim 1H12 numbers); Tom Kalaris, CEO of Wealth & Investment Management, has less than 6% of revenues and 2.7% of profits, while Ricci is now the only representative of the corporate and investment bank, which generates close to 53% of revenues and 59% of profits.

That’s not better balance; that’s unbalanced and it certainly bodes ill for the investment bank in terms of Ricci’s room for manoeuvre and ability to influence outcomes.

Streamlining (read: cutting?)

At the same time, Ricci has been tasked with streamlining the corporate and investment bank. Streamlining is one of those ominous words that are invariably used as a codeword for cutting. Jenkins has already said he would exit activities that cause reputational risk. It’s not clear specifically what he means by that – outside areas such as tax advisory, which has been widely criticised as facilitating large-scale tax avoidance. But cuts to the CIB are widely expected.

As for Ricci’s shake-up of the CIB at the end of last week, it all seemed sensible enough. The big winners were Frenchman Eric Bommensath, head of the newly combined FICC and equities global markets businesses; and Tom King, most recently head of EMEA investment banking and co-head of global corporate finance and M&A.

Bommensath has taken over the global equities mantle formerly held by Jerry Donini as well as responsibility for global distribution, a role formerly held by Guglielmo Sartori di Borgoricco who is leaving the bank. How Bommensath structures the team beneath him will be key. A fixed-income man through and through – and a derivatives specialist at that – he’ll need to put some decent firepower in place to make sure equities doesn’t get crushed under the weight of the FICC platform.

That firepower won’t be in the form of Donini, though, since the former head of equities shifted to become COO of the CIB in a move that kind of looks like one of those face-saving moves to avoid him having to report to Bommensath.

Investment banks have never been quite sure about regional heads in a globalised industry with tribal product alliances and alignments

King has been singled out for greatness. A 20-year Citigroup man and M&A rainmaker, he only joined Barclays in October 2009 but he was promoted into the waiting room of deputy head of IB before he takes over from Skip McGee in 2013 when McGee’s day-job shifts to running CIB in the Americas away from his current slot as global head of investment banking. McGee, the former Lehman man, will keep his hat in the IB ring, though, by taking over as chairman.

I wonder whether King will continue the streamlining of the investment banking group that McGee had kicked off in April when the corporate finance and M&A groups were merged under the trio of Tom King and Ros Stephenson (formerly co-heads of corporate finance) and Paul Parker, global head of M&A.

The merger made sense, as M&A execution was previously managed separately from corporate finance, which housed the industry sector and coverage teams.

Ricci has gone for a matrix of regional CEOs working alongside – or is that against? – global product heads. Investment banks have never been quite sure about regional heads in a globalised industry with tribal product alliances and alignments. (I also wonder about the sense of shifting McGee, a classic Wall Street investment banker, into an operational management role).

The rise of three regional CEOs will certainly engage more of Larry Wieseneck’s time. In another April change, Wieseneck had moved out of his former role as head of Global Finance & Risk Solutions (ECM, DCM, leveraged finance and loans) to become head of strategy for the CIB in a role designed to ensure better alignment between businesses and regions.

With only four of the 13 people sitting on Ricci’s CIB executive committee sporting functional business-line responsibilities versus three with regional responsibilities, it’ll be an interesting balance. And to that point, having Larry Kantor sitting on the CIB ExCom as head of research with a direct line into Ricci is an anomaly relative to how other investment banks are structured.

Most research heads fall under the global markets function. I wonder if that’s the way Barclays will go as it continues to move forward. If so, that’ll make the region/product split 3-3. Could be a classic divide-and-rule construct.

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