It’s the morning after the day before. Analysts have had time to pore over the latest Barclays’ presentation and Barclays’ bankers have had time to consider their fate. For the moment, investors seem to like Antony Jenkins’ plans – Barclays were up 4% yesterday, but that’s not much for a major shift in strategic direction. Some people are starting to ask whether Jenkins’ dismantling of Barclays’ fixed income empire is panicked foolishness.
Jenkins is effectively betting that the current fixed income rout is secular rather than cyclical, points out the Financial Times’ Lombard column. In this sense, he is probably wrong. “Financial markets are always cyclical because memories are selectively short. An incumbent reaps fat gains when the cycle turns. A bank that exits a sector during tough times has little chance of rebuilding its franchise,” says the FT. Admittedly, the dynamics of the fixed income market have been changed by increased regulatory capital requirements, but it’s notable that Lombard’s sentiment echoes both Goldman Sachs and JPMorgan, both of which have indicated that they’re in fixed income currencies and commodities (FICC) trading for the long term and expect a rebound, albeit not soon. Last month, for example, Jamie Dimon said, “I still put it [the weakness in FICC] more in the camp of cyclical rather than secular,” adding that FICC revenues will continue to grow in the long term.
Jenkins’ panicked culling of Barclays’ FICC business and refocusing on territories more familiar to both him (retail banking, Barclaycard, Africa) and to the new leadership of the investment bank (M&A and capital markets) also stands in contrast to that other large European FICC house – Deutsche Bank. Deutsche has so far resisted a dramatic resizing of its FICC business. It is instead going for growth. Yesterday, Deutsche announced seven new fixed income hires in the US. The bank German said more hires are likely. Rich Herman, head of FICC at Deutsche predicted that the US fixed income market will be bolstered by rising interest rates and government bond purchases. Recovery is on the way. Similarly, UK interest rates are expected to rise sharply next year. At that point, FICC revenues could come back and Jenkins’ dismantling of a business built over years could look like unwise.
Separately, JPMorgan has introduced colour-coded spreadsheets to monitor its junior bankers’ working hours. Bloomberg reports that analysts and associates who spend more than 75 hours a week in the office get marked in red on the spreadsheet. Those who work fewer hours are blue or yellow. Senior bankers study the sheets to work out who’s working too much and who’s working too little. If there’s too much red, a junior banker and his/her manager will receive a call to find out whether the hours are justified. If they’re not justified, the manager will get a warning. It’s all about controlling the “use of human capital” confides JPMorgan’s head of investment banking in the US.
Meanwhile
Barclays was put at a “significant disadvantage” compared with its US, German and French rivals by higher capital requirements, the obligation to ringfence its UK retail bank and rules forcing it to defer a greater proportion of pay. (Financial Times)
“People will be trying to get a hold of Barclays’s talent and the business will come with them. Barclays was quite the powerhouse.” (Bloomberg)
One top 20 investor said: “This was a division built to do £16bn or £17bn of revenue and management is now admitting that they can’t achieve that.” (Financial Times)
“This is the end of Barclays as a global flow monster,” said Huw van Steenis, analyst at Morgan Stanley. “If capital requirements have trebled and revenues are still where they were in 2006, the only answer is much more automation to take out costs and ruthless focus.” (Financial Times)
Moelis & Co nearly doubled its revenues in the first three months of the year. It employed 317 bankers and 87 managing directors. (Financial News)
Headhunters’ revenues from hiring financial executives in Europe jumped 17% in the first quarter. (Financial News)
Two charts explaining why M&A is more popular than FICC now. (Quartz)
Bob Diamond and Barclays will be going head to head in Africa. (Dealbook)
Philippe Jabre explains the process you need to go through from university if you want to start your own hedge fund. (Alphaville)
FX probes seem to have spread to traders’ personal accounts. (Euromoney)
Bain & Company’s Research suggests top performers are 4x as productive as average performers . If you want to hire top performers, don’t get an average performer to interview them – they look for congeniality and don’t want to hire someone who will raise the bar and make them look bad. (HBR)
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