Somewhat predictably, it's been a good year at Barclays. The British bank released its third quarter results today, revealing a 24% year-on-year increase in total income and a 25% increase in profit before tax in the corporate and investment bank in the first nine months of the year.
In the third quarter, all areas of the investment bank did well - with the exception of M&A advisory, which did terribly as per the chart below.
In today's investor presentation Barclays suggested that its markets business is performing more like a U.S. investment bank than a European investment bank. Since 2017, European banks have lost share in fixed income and equities sales and trading, while U.S. banks have gained. And Barclays says it's gained more than most.
This strong performance is a vindication for CEO Jes Staley, who has maintained the size of Barclays' markets business despite pressure to shrink it from activist investor Edward Bramson. So far this year, return on tangible equity across Barclays' corporate and investment bank (CIB, which includes sales and trading) has been 10.5%. "Strong CIB performance [is] helping to offset recent income headwinds in the consumer businesses," noted the bank today. Staley confirmed that he plans to stick around.
Barclays has an additional $1bn that could be spent on bonuses
If it felt like it, Barclays could now increase sales and trading bonuses. The cost income ratio in the CIB was just 53% in the first nine months of 2020 - way below rivals' and way below its own cost target of 60%.
The strength of CIB revenues means Barclays could spend an additional £811m ($1bn) on bonuses in 2020 and still hit its 60% cost target.
Needless to say, this won't happen. Staley said today that at Barclays they, "don’t really see a linear relation between variable compensation and variable revenues. It’s more nuanced than that."
It would be hard for Barclays to hike bonuses while dividends are halted, but Staley and CFO Tushar Morzaria also noted that costs are increasing elsewhere: preparing for Brexit has been an expensive endeavour; so too has adapting the business to the pandemic.
The good news is that, despite placing a team of apparent cost-cutters in charge of the corporate and investment bank, Staley and Morzaria said today that they have no intention of making significant job cuts soon. However, Morzaria also noted that - like Deutsche and UBS - Barclays is having issues with a reduced exit rate as fewer staff want to leave. This means that headcount levels are, "higher than where we'd expect them to be," said Morzaria.
Pandemic or not, at some point this will need to be addressed.
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Photo: Barclays' archive