Is Barclays’ I-Banking Strategy Crazy?
Nearly every investment bank on the planet is cutting costs and slashing headcount. As too is Barclays, a firm embroiled in more scandals than Lindsay Lohan.
Conventional wisdom says Barclays is doing the right thing. New regulations demand that banks take fewer risks and hold more capital, and the predominant thinking on Wall Street is that investment banking divisions are ripe for cuts.
Barclays is falling right in line, cutting its global investment banking headcount by roughly 10%, with workforce reductions primarily in Asia but also in its healthier U.S. and U.K. divisions. Prudent, right? Not according to analysts at Bernstein Research, who believe Barclays should be pouring additional resources into its investment banking business, not pulling them out, according to Financial News.
The thinking is simple: Barclays’ strength is its advisory business, particularly in the Americas group, where the division is responsible for roughly two-thirds of the M&A fees generated by the bank during the first three quarters of 2012. Globally, Barclays’ M&A business grew 17% during that time, while J.P. Morgan, Morgan Stanley and Bank of America Merrill Lynch each saw drops of roughly 30%. And unlike other banks like Goldman Sachs, Barclays isn’t well diversified.
Bernstein suggests that it was a combination of management changes, public relations concerns and political pressures that forced Barclays to take a knife to its i-banking business, rather than it simply being a sound strategy. The cuts leave the bank “naked in areas of high growth.”
In short: Bernstein wants Barclays to bet on the horse that got them to the race. An interesting thought at the very least.
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