Chief executives come and go at Barclays but one debate remains the same: can the bank make decent money from investment banking consistently? The question has been asked for 20 years, in which time Barclays has had seven permanent chief executives and two stand-ins.
The debate has burned most fiercely since the wild risk-taking of the early and mid-2000s turned out horribly (except for the lucky employees who had bagged their bonuses). Jes Staley, a JP Morgan veteran who has packed Barclays’ senior ranks with fellow ex-Morganites, was supposed to be the boss who would show shareholders the way to healthy returns from investment banking in a world where regulators rightly insist on fatter capital cushions.
Staley declared that Barclays’ investment banking unit, after its post-crisis tactical retreats from some activities, would not get any smaller. It would be a core part of the group’s rebirth as a “transatlantic consumer and wholesale bank”, freed from its continental European retail distractions and its capital-hungry African operations.
The clearing of decks has happened, so how’s the investment bank shaping up? Not so well. Nobody expected knock-out numbers because even the big Wall Street houses report sluggish market conditions. Barclays’ figures, however, were even weaker than forecast. Trading income was down 14% after nine months of 2017, with the third quarter being considerably worse.
Barclays’ shares fell 7% and now trade at just two-thirds of book value, suggesting investors’ faith is flagging. To try to raise spirits, Staley finally set some hard financial targets for the whole group – return on equity will be 9%-plus in 2019 and 10%-plus in 2020. Both would be a big advance on the current 5.1%. But, to get there, the investment bank needs to bring in more revenue – it still accounts for about half of Barclays’ assets. It’s not happening currently.
There is, of course, a fair argument that Barclays would be in a messier state without its investment bank: diversification helped the UK retail bank pay all those PPI compensation bills. And there’s little point abandoning Staley’s strategy after only two years if the first prize is meant to arrive in 2019. But, for those who have watched Barclays’ long struggles with its investment bank, a sense of deja vu is already creeping in.
Trouble at Deutsche Börse
What news from Frankfurt, Europe’s next financial hub? Well, the chief executive of Deutsche Börse, Germany’s stock exchange, has had to resign amid allegations of insider trading. To put it mildly, that’s not an ideal top line for a come-to-Frankfurt sales pitch.
Carsten Kengeter’s position has looked impossible since a German court this week rejected a deal that would have seen him pay €500,000 (£443,281) and avoid criminal charges. The Frankfurt prosecutor had said there was “currently not sufficient suspicion against the accused” and backed the settlement, but the judge told the prosecutor to keep investigating. A related settlement with Deutsche Börse itself, worth €10.5m, was also thrown out.
Kengeter and his soon-to-be former employer deny the allegations, which stem from the chief executive’s purchase of shares worth €4.5m in December 2015, a few weeks before Deutsche Börse said it was in formal merger talks with the London Stock Exchange, an announcement that sent its share price up.
Kengeter may yet be exonerated but no detail of the handling of this affair reflects well on Deutsche Börse, a pillar of the German financial establishment. The very serious allegations have consumed the company for most of 2017 and September’s ill-fated settlement was designed to allow it to “re-focus as quickly as possible on managing the business and leave behind the serious burdens placed on it by the investigation proceedings”.
Now Kengeter has to go anyway and the investigation is back on. Not good, especially when you’re meant to be exploiting the Brexit blizzard to snatch business from London.
Incidentally, the two companies’ share prices have travelled at different speeds since the merger talks collapsed at the end of March. Deutsche Börse is up 11% but the LSE by 26%.
Why can’t BT implement price cut sooner
Providing a landline-only service to 1 million people, mostly pensioners who haven’t joined the broadband life, is money for old copper for BT. So it’s only right to applaud regulator Ofcom for insisting that the company cuts its prices for some of its most loyal customers. The monthly cost of line rental for BT’s landline-only punters will fall by £7 a month to £11.99 from April.
Why not immediately, though? Apparently it’s because BT needs time to adjust its systems and adapt its IT. Five months of fiddling to change a price? No wonder BT’s roll-out of a fast-fibre network is taking so long.
