[ad_1]
Barclays investment bank dodged a bullet again.
For years, many investors and analysts have focused on investment banks. They said this was a drag on the share price and should be cut or spun off so the group could focus on its more profitable retail business.
As the investment bank’s profits slump, Chief Executive Officer CS Venkatakrishnan last October pledged to implement a restructuring to address poor performance.
Venkat and his team reportedly considered some pretty drastic cuts. But on February 20, Mr. Venkat announced a reprieve, declaring, “We like where investment banking is.”
read Bramson got the timing wrong with his Barclays investment
Given the skepticism among investors, you might think such comments would receive very negative reviews. Still, the stock closed the day up nearly 5%. This primarily reflects the group’s very bullish forecasts and updated commitments regarding capital distribution to shareholders.
And the truth is, investment banks aren’t being left out as lightly as you might think. The plan includes the investment bank maintaining risk-weighted assets at approximately current levels for the next three years.
Taking into account the effects of inflation and Basel III rules, this would involve a significant reduction in the amount of real capital that investment banks would have to manage. The company’s share of the group’s risk-weighted assets is expected to fall to 50% in 2026 from 58% last year.
Still, this compares to just 25% of the equivalent figure that UBS is targeting after taking over Credit Suisse. “We don’t feel the need to take the drastic action that other companies have taken,” Venkat said, presumably referring to UBS.
Barclays has no intention of retreating from any product sector, even marginal businesses like municipal bond trading in the United States, where the mighty Citigroup is doing its best. Nor do we systematically weed out unprofitable customers. But Adeel Khan, currently the sole global market head, said individual clients would be left to assess whether they were generating the right mix of returns on the capital allocated, but that was largely The same thing could happen.
Barclays has announced plans to cut costs by £2bn over the next three years, following on from £1bn last year. The investment bank is expected to pay for the bulk of the job cuts, but the company did not disclose the size or location of future job losses.
On the banking side, some critics have suggested that Barclays should cut back on its relatively weak equity capital markets and M&A advice. However, Venkat has a completely opposite suggestion. Equities and M&A are less asset-intensive than debt capital markets, so they plan to expand in these areas.
Return on assets is a key metric for investment banks, with return on tangible equity falling from 14% in 2021 to just 7% last year. The goal is to reach 12% in 2026 by allocating more assets to high-margin businesses such as lending to large companies (which are captured by investment banks) and providing loans to investor clients for hedging and arbitrage. The goal is to get it back above %. .
This is a big area of growth for Barclays, which Venkat claims is reducing the volatility of trading income.
read Why Europe’s biggest investment bank is lagging Wall Street rivals in cutting costs a year later
Barclays predicts that revenue from its markets business will rise 15% from £7.2bn over the next three years, while banking fees and income from international corporate banks will rise 18% from £3.8bn in 2023. There is. Some analysts view these numbers as follows. It’s pretty punchy, but Barclays claims it’s based on conservative assumptions about its market share and the normalization of industry wallets after wild swings in recent years.
Like almost all of its rivals, Barclays is looking to make some of its investment banks more aligned with other companies, sell more investment banking services to customers in the market, and sell better, more stable transaction banking services to all of its customers. speaking. It’s unclear how much of that is factored into the company’s forecasts.
Barclays’ investment bank has performed well in many respects in recent years, increasing its market share and strengthening its position with its most profitable clients. We have invested heavily in technology and banking players, particularly in our marketplace business.
It’s not unreasonable to suggest that the company should start recouping now from these investments and shifting resources to more profitable areas. Whether the predictions can be achieved is another matter.
And there’s one thing there’s really no question about. If it disappoints in the coming years, it’s unlikely to dodge a bullet again.
To contact the author of this article with feedback or news, email David Wighton
[ad_2]
Source link
