Maybe Deutsche Bank needs to get itself a Tim Throsby? Deutsche CEO John Cryan is being lambasted for a lack of vision when it comes to growing the investment bank; Barclays' CEO Jes Staley and Barclays' investment bank CEO Tim Throsby have this in spades.
As we noted last month, Barclays has been the big hiring story of 2017. Information from headhunters suggests that Barclays has hired-in more than 21 managing directors to its investment bank globally this year (including two in asset finance solutions at group level). Assuming, not unreasonably, that each MD level hire costs around £300k ($395k) in total compensation, this implies that the bank has spent around £6.3m ($8.3m) just on first year salaries and bonuses for its new hires. In fact, the number is likely to be a lot higher - those 21 recruits are not comprehensive and include business heads who are likely to be on larger packages, plus there have been mid-ranking hires below them, plus Barclays will have bought out MDs' bonuses. In total, the spend is likely to be well in excess of $10m - perhaps even double that.
The rush of recruitment may raise eyebrows. In the first half of the year, costs consumed 70% of revenues in Barclays' corporate and investment bank (CIB) up from 66% a year earlier. Deutsche Banks' analysts have already questioned the comparatively high cost ratio in Barclays' U.S. operations. As Barclays spends on new senior bankers, it will be hoping they generate the revenues to justify their existence.
This is clearly the expectation. In last month's presentation, Throsby set out a detailed strategy for growing the investment bank and increasing its return on equity to 10%. The markets division will be allocated additional capital and encouraged to use extra leverage. There will likely be (even more) hires. Barclays' traders will also be encouraged to take more risk, although insiders we spoke to were at pains to stress that this doesn't mean ramping up the bank's risk exposure and is simply about encouraging the bank's traders to make the most of their existing limits. Following three years of timidity under ex-CEO Antony Jenkins (who today popped up to declare that glory days of banking are over), Barclays traders had become too scared to take even the risk allowed to them.
With the influx of new blood, this could all change. Throsby has scoured the market for top talent. This year's hires include five managing directors (MDs) from Goldman Sachs (including Ulrich Kratz and Asita Anche), four from leading hedge funds (including Michael Lublinsky from Brevan Howard), three from BAML (including Joe Hegner and Filippo Zorzoli) and two each from Morgan Stanley and Deutsche (including Rupert Jones and Kristen Macleod). Two thirds of the new MDs are in the markets division, where they can be expected to generate revenues more quickly than those who've gone into banking.
Nonetheless, it won't be easy to lift revenues by amount required justify this year's spend, particularly in fixed income sales and trading. Banking analysts at KBW are predicting today that J.P. Morgan's fixed income trading revenues will be down 25% year-on-year in the third quarter. A third of Barclays' new MDs are in macro trading, and J.P. Morgan's analysts are specifically predicting a 25% year-on-year revenue fall on rates desks in the third quarter.
Even so, headhunters say Barclays hasn't over-hired. "When you look at Barclays, you need to remember that they hardly hired anyone for over two years," says one headhunter who works for the bank. "What you see here is just making up for lost time."
A spokesman for Barclays said: "Barclays continues to reinvest in the business and identify opportunities for growth and improved returns. Every business unit has been involved in delivering on these plans.”
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