Morning Coffee: End game at Barclays? How to avoid the six year bonus clawbacks
How many different chief executives can one investment bank stand? If you look at the recent history of UBS, the answer would seem to be quite a few. Investment bankers at Barclays have been used to a little more consistency, however.
Having been ruled by Bob Diamond for more than a decade, Barclays' investment bankers have suffered three different heads in two years since Diamond's departure in 2012. First there was Rich Ricci - the exuberant Diamond acolyte who retired in April 2013. Then came the current co-head structure under Eric Bommensath and Tom King. Today, the Financial Times reports that Barclays plans to shakeup the investment bank again and to ditch Bommensath and King in the process. Thousands of job cuts are expected along the way.
For Barclays investment bankers, this is clearly bad news. Some have left already of their own accord. Since Diamond's departure there have already been two strategic presentations on the investment bank - one by Ricci ('Project Mango') and another squib of a thing by Barclays CEO Antony Jenkins and CFO Tushar Morzaria (who is incidentally being posited as the replacement for Bommensath and King). Neither were satisfactory. Both fundamentally made the same point: Barclays wants to cut costs and has a strong fixed income business.
Investors are unhappy, however. Costs haven't been cut enough, bonuses were hiked, and in a world where fixed income revenues are falling, Barclays' big fixed income business looks more like a liability than a boon. Analysts at JPMorgan are predicting an 11% cut in investment banking revenues in the first quarter, but at Barclays they expect revenues to fall 15%, Something has to change. This time, the change at Barclays may actually be dramatic.
Separately, the Prudential Regulation Authority in the UK wants to make it possible for banks to clawback bonuses over a six year period. This could mean banks clawing back bonuses that have already vested as opposed to simply not allowing unvested stock to be cashed as happens at present. If implemented, the new rules could have dramatic implications for bankers' spending habits. It could also encourage individual bankers to make careful records of everything they do at work in order to absolve themselves if a case is raised against them in the future. Sam Whitaker, a counsel at law firm Shearman & Sterling, tells us six year clawbacks could be difficult to enforce: "If witnesses had left employment, it might be very difficult indeed."
Return on equity in Barclays investment bank is 8.2%, down from 12.2%. (Financial Times)
Barclays is already cutting 410 investment bankers over the next six months, all of them senior. (Telegraph)
Deutsche Bank says the year has ‘started slow’ for revenues in its investment bank. (Bloomberg)
Sergio Ermotti has had his pay hiked by 20% to CHF11m. (Financial Times)
Moody’s has cut RBS to Baa1 from AA3 and put it on negative watch. Says restructuring could depress profits. (Telegraph)
The UK is around $350 million away from a record first quarter for initial public offerings. (Financial News)
Goldman Sachs partner made US ambassador to Canada. (IB Times)
Attack on pensions in the City of London. (CityAm)