10 things you should know about the future of Barclays investment bank
Last Friday, Tom King and Eric Bommensath, co-chief executives of Barclays Corporate and Investment Banking made the first presentation concerning the future of Barclays' investment bank since the unceremonious departure of Rich Ricci in April.
In his last presentation on this subject, in September 2012, Ricci said Barclays was committed to remaining a key global bank but that it was shifting some of its jobs to low-cost overseas locations.
Since then, some things have changed. Some have stayed the same. This is what you need to know.
1. Barclays is going to offshore another 4,000 roles between now and 2015
Now is not the time to be working for Barclays in London or New York whilst doing a job which could be done equally well in Mumbai or Dallas. King said the bank has already offshored 2,000 roles to 'low-cost locations' and that it plans to offshore a further 4,000 between now and 2015. King didn't specify where the low-cost locations are located, but recent reports suggest that Barclays is hiring 700 technology professionals in Dallas.
2. Barclays has lowered the profit target for its investment bank, again
Pre-2011, Barclays was targeting a return on equity (RoE) of 15-20% in its investment bank. Bob Diamond quietly lowered this to 13% across the cycle but earlier this year the target was raised to 14-15% by 2015. Today, King and Bommensath quietly lowered the RoE target again - to 11-12% including head office costs, the effect of the banking levy, and the 'drag' from legacy assets.
This is both good and bad. It's good because the lower the target, the fewer the businesses areas that will need to be immediately culled to meet it. It's bad because the lower the target, the less profitable the investment bank. And the less profitable the investment bank, the greater the likelihood that...
3. Barclays will be paying its bankers a lot less in future
Barclays also said today that it's targeting a compensation to income ratio of around 35%. In the last quarter of 2012 and the first quarter of 2013, the compensation ratio at Barclays investment bank was 43% and 41% respectively. Barclays needs to pay less to meet its target.
4. Barclays has no intention of closing its Asian trading hubs
If you work in trading for Barclays, you need to be based in one of its six trading hubs - New York, London, Singapore, Hong Kong, Tokyo and (more obscurely) Johannesburg.
Despite speculation earlier this year that Barclays would make big redundancies in its Asian operations, there was no mention today of closing any Asian trading hubs.
5. Some areas of fixed income currencies and commodities (FICC) trading are key to Barclays; others aren't
If you work in FICC sales and trading at Barclays, you really want to be working in flow credit, flow rates, or G10 FX. These are the areas where it's ranked in the top three. You might want to avoid areas like distressed credit, structured credit and securitization - Barclays is happy to be ranked 7-10 for these businesses, which could yet be seen as dispensable.
Click the thumbnail below for the full chart.
6. Barclays is seizing market share by being lean and mean and it won't be hiring wholeheartedly
Since 2009, Barclays has increased its 'producer headcount' by 17%. It has also increased its share of investment banking fees from 3.2% to 5.2%. However, Barclays has 15%-30% fewer 'producers' than its rivals. This could set an unfortunate precedent in terms of jobs: banks don't need to hire to grow revenues in future.
7. Barclays has discovered that it's possible to cut equities bankers without affecting market share
Late last year, Barclays made cuts to its equities business. These cuts have had no noticeable adverse affect on market share. In a falling market, Barclays pointed out that it increased market share in all countries between 2009 and 2012. This was from a low base, however...
8. If you work in a non-client facing role in IBD for Barclays, you might want to be based in Hong Kong or the UK
Barclays also said today that it's streamlining its 'coverage hubs' with a focus on the UK and Hong Kong. From these hubs, it will offer 'extensive industry coverage' and 'full product capabilities,' and provide 'global access' for UK and US clients from these two hubs. If you're doing a negligible non-client facing role at Barclays in Singapore or even New York, you might want to seek an internal transfer.
9. Barclays has quietly slashed nearly 20% of its commodities staff
Barclays' equities job cuts attracted a lot of attention, but the bank's equities staff got off lightly - the real pain over the past year has been in commodities, where Barclays slashed 18% of its staff. It's all over now though. Following the cuts detailed in the chart below, Barclays said its businesses have been 'right-sized'.
10. Jobs may still go in Barclays' control functions
Barclays hasn't finished cost cutting. Between the end of 2012 and 2015, it wants to cut another £500m-£800m from its cost base. People working in 'core control functions' are at risk - King said Barclays wants to reduce duplication in HR, risk, finance, legal and compliance.