Deutsche Bank very much impressed by Barclays corporate and investment bank

There was a time when Deutsche and Barclays' investment banks were seen as pretty similar. Both were large European investment banks appended to a nationally-rooted retail banking parent. Both were big in fixed income trading. Both had cost and behavioural issues. Lately, however, their paths have diverged: in the third quarter of 2019, Barclays' corporate and investment bank (CIB) made a profit of £882m (€1bn) while Deutsche's CIB made a profit of €318m - less than a third as much.

It's not just profitability. Deutsche, needless to say, has embarked upon a strategy of cutting 18,000 jobs after closing its equities business in July. In the year to October, nearly 4,000 people disappeared from Deutsche's investment bank, although only 500 were said to have gone involuntarily. At Barclays, by comparison, there's an ongoing commitment to being a full service U.S. and U.K. centric investment bank and while investment bank jobs have been cut, the layoffs are a splish in the ocean by comparison.

Now Deutsche's banking analysts have issued a note eyeing-up Barclays in what might be considered a slightly wistful way.

Barclays' CIB is a 'continuously improving business' say Deutsche's analysts. It's gained market share. It has, 'decent market positions in most key products (particularly in the large and profitable US market).' It's 'overdelivered on cost reductions' even in difficult quarters. And it's, 'achieved a 9%+ return on tangible equity (ROTE) in every quarter of this year so far, with much lower fluctuation from quarter to quarter than in the past.'

Some senior Deutsche bankers seem to share the analysts' opinions and to have voted with their feet. Alastair Blackman, a media-focused banking MD, left Deutsche for Barclays in August; Riaz Ladhabhoy joined as co-head of internet banking in February. Simon Denny joined in South Africa in April. More may follow: Deutsche's analysts note that Barclays is still "selectively strengthening" its advisory teams in an effort to stabilize its banking income.

Naturally, there are still some notes of caution. Although the return on equity in Barclays' CIB is rising, Deutsche says it still doesn't cover the cost of capital and is "well below" the returns in Barclays' other operating divisions. This doesn't bode entirely well, given that the corporate and investment bank consumed nearly 60% of Barclays' total risk weighted assets in the first nine months of 2019 - and that activist investor Edward Bramson continues to lurk on the sidelines demanding that the CIB be shrunk to fit.

Deutsche's analysts seem prepared to overlook Bramson though. Their note doesn't mention Barclays' nemesis once. Instead, they go on to observe that Barclays CIB is on track to be the most profitable in Europe this year, that the cost income ratio is a modest 66%, that Barclays' CIB has 'steadily reduced adjusted costs by low single digits annually' since 2017, that the volatility of its capital markets income is lower than European rivals' and more like a U.S bank's, and that Barclays has been gaining market share almost everywhere of late (DB's analysts call out market share gains in U.S. M&A, U.S. ECM, global credit trading and global equities sales and trading especially). While Deutsche's own equities business is dead, Deutsche's analysts say Barclays' has now achieved a 6% market share globally.

The only real downside to working for Barclays seems to be pay. As the chart (from Deutsche's note) below shows, bonus accruals at Barclays were down a lot in the first half of 2019 compared to a year earlier. That's the disadvantage of working for a bank with a laser-like focus on cost control.

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