Barclays has announced a secular shift in the strategy for its investment banking business, which is now being heavily culled and refocused on client service and easily-automated low-capital intensive trading products. 

But guess what? This isn’t the first time that Barclays’ senior management have stood up and made significant presentations about the strategy at the investment bank. Below, we’ve tracked the evolution of these presentations over the past six years. It’s worth noting that Barclays has been cutting costs and eliminating overlaps in its investment banking infrastructure since at least 2011, and yet today’s results revealed that it still has 3.5 back office staff to every productive front office banker.

Barclays’ recent history has also been one of growth and retrenchment – whether in commodities, Asia, emerging markets, or continental Europe. Let’s hope that today’s strategy doesn’t prove too optimistic again.

April 2008: Watch it grow

Back in 2008, when the financial crisis was still in its relative infancy, Bob Diamond stood up and made a presentation at the 2008 Morgan Stanley European Banks Conference.  Back then, Barclays was generating a 20% return on equity (ROE) and Bob said the investment bank was contributing a lot of this. The ‘macro products’ business (FX and rates) was Bob’s baby. Barclay’s FX sales and trading revenues grew 60% in 2007. Rates revenues grew 70%. Bob said that Barclays was very well positioned for the future and that the bank planned to ‘scale up’ in commodities, which was benefiting from “a compound annual growth rate in excess of 75%.”

September 2008: The market’s in crisis. but Barclays is fine

Four months later, the financial crisis was definitely on. Barclays acquired Lehman on September 16th 2008. Eight days earlier, Bob Diamond made a presentation at the Lehman Brothers financial conference. There, he declared that markets were more challenging than they’d been for 25 years, but that Barclays Capital was fine: it was winning market share, it was still profitable. There was a “flight to quality across the industry,” said Bob, implying that this flight was to Barclays. Clients were “showing their appreciation” and giving Barclays more business, he added. Diamond concluded that: “Markets will continue to be challenging but we believe our model, combined with our focus on driving performance, place us in a strong position to take advantage of opportunities.”

March 2009: The Lehman acquisition had given Barclays a ‘generational opportunity to go for growth’ 

By March 2009, Barclays had already had six months to digest Lehman Brothers. It was going well, said Bob Diamond at the Morgan Stanley Financial Services Conference that month. “We believe the new competitive environment and our integration with Lehman will offer us opportunities to grow revenue and return through winning market share, adding new capabilities, and bringing these to an even larger client base,” declared Diamond. Growth opportunities for Barclays in FX and commodities were “tremendous,” he said. Barclays was, “building the U.S. business” and “expanding the global Barclays Capital franchise,” Diamond added. Fundamentally, it was all about growth (still).

June 2009: Going for growth in Asia

Three months later, Barclays Capital was still going for growth, but the emphasis was on international domination. With established businesses in the U.S. and the UK, this meant conquering the rest of Europe and Asia. At the Barclays investor seminar New York, Bob Diamond and Jerry Del Missier, its former chief operating officer, said the bank wanted to be a top three performer in all its business lines. This meant investing heavily in fixed income, currencies and commodities in Asia Pacific, along with equities and origination and advisory banking.

Del Missier said Barclays planned to create, “top tier equities and M&A businesses in Europe and Asia over the next three years.” In Asia, the bank would focus on Japan initially, said Del Missier, “then building out selectively market by market in a way that’s aligned with the opportunities.” Barclays had already hired 600 people in Europe and Asia since the end of 2008, he added. 

March 2010:  Barclays Capital is invincible, and still growing in Asia

Nine months on, Bob Diamond stood up at the Morgan Stanley Financial Conference and said Barclays Capital was capable of growing and generating profits no matter what. “There’s been a consistent pattern of operating through almost any cycle, of interest rates, credit spreads, volatility, M&A activity, equity markets, inflation. It pretty much doesn’t matter,” crowed Bob. “We can execute through the cycle and through various market conditions and I think one of the things that’s highlighted here is there has never been a reporting period with a loss for Barclays Capital.”

Such was the strength of Barclays Capital, that Diamond said it could generate returns of 15%-20% across the cycle. This was nothing to do with prop trading, he insisted: “This business
has been built on an incredibly powerful client franchise.”

Hiring was still happening in Asia. “We’re 80% to 85% done in Europe and over 50% done in Asia,” Bob imparted.

September 2010: Barclays wants to be the preeminent global investment bank. Emerging markets are it

In September 2010, Bob Diamond stood up at the Barclays Capital investment banking conference and said Barclays’ mission was,  “to be the premier global investment bank.” Barclays wanted to be the top three in each of the areas in which it operated, reiterated Diamond. However, there was also some creeping talk on cost cutting, leverage reduction and capital optimization. “Since 2007, our core tier one capital ratio has strengthened from 4.7% to 10%. And our adjusted gross leverage has been reduced from the low 30s to 20x,” said Bob.

June 2011: ROE target cut to 15%. Barclays has already restructured the investment bank, which is fine. Still growing in Asia

At the June 2011, investor seminar Rich Ricci and Jerry Del Missier cut Bob Diamond’s 15%-20% ROE target to a mere 15% on a Basel 3 basis. Barclays was using its existing capabilities to drive revenues while optimizing costs, said Richi and Del Missier.  Asia was still it.

November 2011: The investment bank is in decline, but it’s cutting costs, cutting risk weighted assets and is still better than rivals

By late 2011, the cost cutting mantra was gaining ground. Rich Ricci stood up at the UBS Financial Services Conference and said Barclays was, “eliminating duplication and integrating management, support functions and infrastructure wherever possible.” It was also moving to lower cost locations and cutting risk weighted assets dramatically. Structured credit exposures were down 60% since 2009, for example, said Ricci.

Revenues were falling, but Ricci insisted Barclays wasn’t doing too badly. “Our performance in the third quarter was resilient relative to peers, and there are several clear signs that our franchise is strong and healthy,” he said. ” The 15% year-on year decline in third-quarter revenues we saw in Barclays Capital was less than half the decline of our peers, who saw an average decrease of 39%. And our quarter on quarter decline of 22% was again half that of our peers, who declined 40% on average.”

Over in Asia, Ricci said things were still bubbling merrily along. “We’ve nearly completed our Asia Pacific build-out, with India and Taiwan live as at the end of August, and Korea on track to go live in Q1 next year.”

March 2012: It’s not going so well, but Bob’s still bullish

In March 2012, Bob Diamond at the Morgan Stanley European financial services conference. Net income at Barclays’ investment bank had fallen 20% the previous year, but you would never have known. Bob extolled Barclays’ achievements: it was top three in M&A in the UK and the US, the equities business was involved in each of the top five IPOs globally (including the top IPOs in Japan and India), the fixed income unit was number one globally, with a market share of 11%. Etc. etc.

Incongruously, Diamond also introduced the sudden notion of “citizenship,” with whole slides devoted to this. “We’re committed, quite simply, because our ability to be good citizens is critical to creating long term value for shareholders. This is not philanthropy – it’s about delivering real commercial benefits in a way that also creates value for society,” he said.

September 2012: Bob’s gone, Project Mango is on

Diamond left Barclays on July 3rd 2012. In September, Rich Ricci, his successor as head of the investment bank stood up and made his ‘Project Mango’ presentation at Barclays’ Global Financial Services Conference. There, Ricci was characteristically bullish.

Barclays’ investment bank had historically “outperformed,” said Ricci. It had been driven by a “force of incremental improvement.” Fifteen years ago BarCap was a mere sterling house, now it was a, “premier full-service global firm.” The fixed income business was, “one of the best flow platforms in the industry, built to last, over many years of relentless client focus.”

Asia was still important. “Only the strongest global franchises will be able to provide a consistent core offering in all three geographic regions,” said Ricci. “And Barclays is among a handful of organisations in that group.”

There was also a little tiny bit about costs…

November 2013: Pulling back from areas of FICC

Rich Ricci was retired from Barclays in April 2013. In November 2013, Eric Bommensath, a French fixed income trader, and then co-chief executive of the investment bank, stood up and the Nomura financial services conference.  Ricci’s portrait of a resilient investment bank was replaced by a tale of cost cutting and retrenchment. There was the first mention of capital-intensive “exit quadrant” businesses which Barclays intended to exit from altogether. Bommensath also pointed to the removal of 750 front office jobs from the investment bank earlier that year, along with the concept of ‘efficiency through automation and simplification.’  But Barclays’ investment bank was still in a position of strength, Bommensath insisted – albeit not exactly in all the regions and business lines it had once intended.

February 2014: Still horribly over-optimistic

Three months ago, Antony Jenkins and Trushar Morzaria, touched upon the investment bank at the time of the Barclays’ annual report.  Then, they said that Barclays planned to make £350m of annual cost savings by automating processes in its investment bank by 2015. Barclays increased its investment banking headcount by 600 in 2013 and Jenkins and Morzaria promised to put an end to costly hires: no more managing directors or directors would be recruited in 2014, they promised.

In February, Jenkins and Morzaria were still optimistic that FICC revenues would rebound as the year progressed (they actually fell 40% in the first quarter). “What if FICC revenues don’t recover in 2014?” asked analysts on the call. In that case, Barclays will have to rethink, Jenkins said.

May 2014: Partial evisceration, but emphasis on relationship-focused origination bankers

Today’s presentation by Jenkins and Morzaria marked the sorry end to an optimistic journey. Barclays is cutting 7,000 people from its investment bank (28% of its total staff). It no longer wants to be ‘a leading global investment bank’, it just wants to be good at the things it does best. “We will not try to do everything everywhere,” said Jenkins. From now on, Barclays will be focused on the UK and the U.S. Asia is being pared back, so are capital intensive areas of the fixed income business.

“The investment bank consumes too much capital,” said Jenkins today. “It doesn’t generate returns for shareholders and is too large as a percentage of the group. It’s an unacceptable drag on returns for clients…Currently the investment banking is too exposed to volatility in FICC and the group is too exposed to volatility in the investment bank.”

Today is an “important moment for the investment bank,” said Jenkins. It’s moving from, “a balance sheet business to one focused on the origination needs for our clients.” Physical commodities, once a big growth area, have already been exited and from now on Barclays’ markets business will be about products which can drive strong returns. Jenkins identified these as: credit and equities, short dated G10 rates, spot FX, swaps and derivatives. Emerging markets, another former favourite are being shunted into the ‘exit quadrant’, now renamed as the ‘non-core investment bank.’

In future, Barclays’ investment bank will be structured as per the slide below. There will be a far greater emphasis on ‘advisory bankers’, careful cost control (bonuses will ominously be linked to the performance of the group as a whole) and a big push to increase returns by reducing costs. The ROE target has been cut, again to 12%+. Barclays declined to give a revenue target, but analysts said the new-look bank is unlikely to bring in more than £8bn – down from £17bn in 2009.

Is Barclays still too optimistic? Maybe. Many of fixed income product areas it intends to focus on are identical to those now being targeted by rivals. Morzaria admitted that margins could be compressed as a result. Meanwhile, Tom King, the new head of the investment bank is adamant that Barclays has some of the strongest relationships in the business. Is this really the case though? Bob Diamond pressed Barclays’ client franchise for years, but it didn’t do much to stop the bank getting into this situation in the first place.

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