BarCap's problems just got worse
BarCap is already making redundancies. It is already scrutinising its business to work out what's viable and what's not under new capital requirements; according to UBS analysts it would never have made an economic profit had it been obliged to allocate capital in line with Basel III requirements.
The last thing BarCap, therefore, needs is mandatory 'subsidiarisation' from the Barclays Group and an attendant increase in funding costs.
This, however, is what may be on the cards.
The Financial Times today cites John Vickers, he of the UK-government appointed Commission on Banking, who says the Commission may not be as soft on British banks as they might wish.
Specifically, the FT says Vickers will use a speech on Saturday to stress how banks could be overhauled and forced to, 'ring fence, or "subsidiarise", their component parts.'
This would increase funding costs for those component parts (AKA BarCap) by up to 5-10bn a year, rendering them unviable as currently constituted. In the event, the FT says BarCap would simply relocate to the US.
But US banks have problems of their own. As JPMorgan analysts noted last week, a new strict interpretation of the Volcker Rule now looks likely to impact market making as well as proprietary trading activities at US-based banks. 46% of revenues at Goldman could be impacted as result.
JPMorgan analysts had highlighted BarCap as one of the beneficiaries of the stricter US trading rules. A massive increase in capital costs means this wouldn't be the case.
Long term, whether it stays in the UK or moves to the US, BarCap's current sales and trading business could prove unviable. This month's 600 job losses may just prove the beginning.
