The TRUTH about BarCap

BarCap has released its third quarter statement, permitting a more definitive judgement about what's going on there.

Based on this, and today's conference call, it is now possible to conclude that:

1) BarCap has actually made 500 redundancies

Last time Barclays reported, it said BarCap employed 25,500 people. Today, CFO Chris Lucas said it employs 25,000.

2) BarCap's not paying that well after all

Yesterday, there was excitement over the Sunday Times' assertion that BarCap had accrued 1.5bn in compensation in the third quarter.

This appears to have been an over-estimate. Compensation costs at BarCap in third quarter were 42% of income (net of own debt charges), amounting to 1.1bn.

This means BarCap has accrued compensation costs of 4bn for the first nine months of the year. In 2009, full year compensation costs were 4.4bn, but BarCap had 2,000 fewer people.

Last year, Barcap paid an average of 193k per head. This year, it's on track to pay 213k (including guarantees and deferrals). That's still up, but up by less than predicted yesterday. Bearing in mind that rather of lot of this might be in guarantees, some people may yet see their pay fall.

3) 60% of BarCap's compensation costs are now fixed

BarCap also helpfully broke out its variable comp costs. Of 4bn accrued so far, 1.6bn is this year's bonus pool and 600m is deferrals from last year.

Whatever happens to revenues, Barcap will therefore need to pay compensation of 2.4bn, or make redundancies. The average salary at BarCap appears to be 72k.

4) BarCap is not really doing very well in equities

Quarter-on-quarter, top line revenues in BarCap's equities business were down 36%. In the first nine months of the year they were down 23%. On average, other investment banks increased equities revenues 6% q-o-q. The average year to date decline is just 5%.

BarCap's equities performance is particularly questionable given it's attempting to build in this area. Rich Ricci insisted that the cash equities business is doing ok and they are gaining market share. Equity derivatives are the problem.

5) BarCap's not doing particularly well in FICC either

BarCap's top line FICC revenues were down 37% in the first nine months of the year compared to the same period of 2009. The market average reduction was 11%. This doesn't look great given that BarCap's relying on FICC to subsidise its expansion into equities and advisory.

6) BarCap's doing ok in IBD

IBD had a good third quarter, with revenues up 9%. Even this isn't wonderful, however: Goldman achieved a 22% increase; Citi achieved an increase of 38%.

7) Most of BarCap's hiring is (still) done

Don't expect a big surge of hiring in 2011 from BarCap. The bank reiterated that 75-80% of the investment banking build out is now complete. Interestingly, it's been saying the same thing for a while, suggesting not much has been done recently to hire the extra 20%.

8) BarCap still wants to hire equity researchers

Equity researchers are seen as the vanguard of any cash equities business. Ricci said there are plans to "broaden the research presence," in Europe and Asia.

9) Unless revenues pick up soon, BarCap may be obliged to cut costs

BarCap aims to keep its costs within a range of 60-65% of revenues. Costs for the first nine months of 2010 are currently 65% of revenues. Any further fall in revenues will necessitate cutting.

10) BarCap made a loss, but it was chimerical

Yes, BarCap made a loss in the third quarter, but it was down to the changing value of its own debt, which registers as a cost. Excluding this, BarCap made a profit roughly equivalent to Q309. Margins improved from 20 to 27% over the period.