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Tuesday, 12 December 2017

Will the market drink Staley's Kool-Aid?

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  • Keith Mullin

Did investors overdo the gloom on Barclays on Tuesday? The 10% drop in the wake of Jes Staley’s narrative was surely a bit of a knee-jerk reaction. Sure, the dividend cuts in 2016 and 2017 were a bit of a kick in the nads for the income junkies, but still …

I thought Staley came across well as he was wheeled around from pillar to post and he told his story to all and sundry without diverting from the script and in the face of a round of mischievous questions. When all’s said and done, what he’s doing is asking shareholders and stakeholders for more time. Unless he’s got a functioning crystal ball, he doesn’t at this point really have any more idea than we do if circumstances – or markets – will put his plan on-side.

But other than coming up with a credible-sounding plan, articulating it well and asking people to take it on trust, there’s not much else he can do. On the surface, what he said was reasonable and seemed well thought out, notwithstanding there was little that was totally new or which hadn’t been leaked.

Those expecting the investment bank to have its legs chopped off will have been disappointed. If anything, the loss of ‘investment bank’ in any divisional title was trumped by the fact that Staley cemented investment banking as an integral component of the Barclays toolkit, part of the new corporate and international division. He certainly uttered some comforting sound-bites:

• “We will excel in Corporate and Investment Banking, continuing to be a deeply respected firm in the global capital markets, servicing the world’s most important corporate clients, investors, and Governments.”

• “There are some who have recommended that we would be wise to exit this business entirely. I disagree and think that such a move would be short-sighted. Barclays will ultimately be a stronger Group with an Investment Bank.”

• “I have no intention of increasing Risk Weight Assets for the Investment Bank but I believe (that) to significantly reduce them further would erode the IB’s core functionality and our ability to compete at the top tier.”

• “Global finance, the oxygen of commerce, will only flow efficiently if the investment banking industry is itself, financially healthy. And as one of the few remaining European investment banks, Barclays is well-positioned to benefit.”

That’s pretty positive stuff. There might be a lag before the investment bank can earn its keep – and I still think Barclays should further de-emphasise bits of its equities business – but Staley has made the play so now we’ll have to wait to see if his idea of a transatlantic integrated consumer, corporate and investment bank catches on.

It’s a notion that has been developing at Barclays for some time and has merit on paper (beyond the fact they haven’t really got anything different to offer), given the proportion of the global IB wallet that the transatlantic corridor generates. For 2015, US/UK accounted for 54.5% of global IB fees, according to Thomson Reuters/Freeman data. Mind you, the vast majority of that is related to the US, which plays into my previous exhortations for Barclays to maintain a tip-top Wall Street presence.

The question is whether Barclays can build a convincing enough proposition at the sharp end and get clients on board to give it the market share gains it needs to allow it to live comfortably off that sweet oxygen of commerce.

● Elsewhere, I see that Steve Ashley continues his ascent to towards the peak of Nomura, having just been appointed joint head of the firm’s wholesale division alongside Kentaro Okuda. The co-heads will continue to run their fiefdoms – global markets for Ashley and investment banking for Okuda – and Ashley will continue to be based in London.

He’s been on a constantly upward-sloping trajectory since joining from RBS in May 2010: going from running rates when he joined to heading up fixed-income at the start of 2012 to taking over as global head of markets the year after. Not bad, especially for a firm whose international operations have suffered in the round of cost-cuts and retrenchments that Nomura has made in recent years. Still, the wholesale division accounted for 59% of Nomura’s net revenues in the nine months to end-December so more power to Ashley.

I also see that M&A man Yutaka Mogi was made up to co-head of investment banking EMEA to Charles Pitts-Tucker (who’s also joint head of international investment banking with James DeNaut in the US). But in typical Japanese style, Mogi is not actually co-head; he’s deputy head and Pitts-Tucker remains the more senior.

On a slight side note, why do Japanese bank announcements have to be so difficult to decipher? While most banks give you a narrative and, when it comes to executive changes, tell you who’s gone from where to where, the Japanese banks give you … a spreadsheet that lays out current roles but without a column showing previous roles.

● And finally, an update. On January 26, I wrote a piece (Step Forward Farhan Faruqui) extolling the virtues of promoting said Faruqui to fill the gap left by the departure of head of international and institutional banking (IIB) Andrew Geczy. It just so happened that the day after my piece went out, new CEO Shayne Elliott unveiled his senior leadership team.

On first reading, there’s no IIB replacement per se for Geczy. Except there was. Mark Whelan was named group executive, institutional, moving from his previous position as managing director, commercial, Australia (see what I mean, Nomura …). But Faruqui also got a group executive position, for international. The thing is: Faruqui reports to Whelan so Whelan is head of IIB. Why not just say so? And here’s another thing: Whelan has responsibility for institutional banking but international head Faruqui has responsibility for ANZ’s institutional business in Asia, Europe and America. Clear? Answers on a postcard …

 

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