Signs that Barclays Capital is not great after all

There was a time when it looked like Barclays Capital might be the next Goldman Sachs Nick Clegg. Sadly, it appears this is not to be.

BarCap's interim results aren't great. Since they were announced, Barclays' share price has fallen around 4.6%. Here's why things aren't as pretty as they might have been.

FICC is not good

While other banks appear to have had a good first quarter in fixed income currencies and commodities, BarCap hasn't.

Year on year, FICC revenues rose 12% at JPMorgan, 13% at Goldman Sachs, 16% at Bank of America Merrill Lynch, and 118% at Morgan Stanley. They fell 46% at Citigroup, 34% at Credit Suisse, 25% at Deutsche Bank, and....67% at BarCap.

BarCap also said specifically that the rates and commodities businesses weren't good. This contrasted with Deutsche, which said its commodities business was solid, and with Credit Suisse which said it had strong results in rates.

There is no sign of equities

What about BarCap's equities business? The bank doesn't disclose much in its interim statement, so it's not clear what contribution the fledgling equities sales and trading and ECM businesses have made this year. Their omission doesn't necessarily augur well.

Either way, equities are unlikely to compensate for the faltering performance in fixed income. The Telegraph points out that BarCap's ECM revenues rose to $75m last year, up from $26m in 2006.

In a conference call, Barclays Capital President Jerry Del Missier said new businesses (cash equities) should come on stream, "in the next nine months." However, this seems a little slow, particularly as Morgan Stanley's fixed income build already appears to be having a measurable and substantial impact.

Compensation is constrained

Finance director Chris Lucas said Businessweek the first quarter compensation ratio was 38%-39%. This is low compared to rivals like Goldman (43%), Morgan Stanley (41%), and Credit Suisse (45%).

Based on current rates of accrual, the average BarCap employee earned 60.3k in the first quarter.

Profits didn't really rise hardly at all

Pre-tax profits at BarCap were up 72% to 1.5bn. However, this was mostly because impairment charges were down 563m year on year. When the flattering effects of lower impairment charges are removed, BarCap profits rose only 6%.

The Emperor's clothes may have fallen off

Bruce Packard, analyst at Seymour Pierce, has gone off BarCap. He's downgraded the stock, and writes:

We are sceptical about continued growth at Barclays Capital. At the FY Barclays suggested that reform of investment banking should be based on science, rather than rhetoric. But science long ago renounced attempts to create a perpetual motion machine, to create energy out of nothing and to square a circle. FICC bankers, on the other hand, have worked hard to perpetuate the scientific nonsense of everlasting, compounding growth. Behind the sterile equations of modern finance, is the stench of medieval alchemy, lead into gold, debt into wealth.