The cuts announced on Thursday are by no means a disaster for the firm. Barclays never made great play of its Asian equities franchise, and shows no signs of throttling back on its top notch bond origination business, or its new-ish, shiny EMEA investment banking operation.
And any firm with a decent slice of US M&A business should be putting the pedal to the metal right about now.
But they are interesting because they’re purely business, not driven by regulation. Cash equities is pretty much the cleanest, most attractive business out there in the new regulatory environment. Flows of commission coming from transparent, exchange traded products are exactly the kind of cashflows banks can ill-afford to do without.
However, there’s just not very much juice in it. It’s a highly commoditised, low-margin business, and if it doesn’t connect up to private banking, equity capital markets, and prime brokerage, banks can’t make money from it. Paying humans to broke shares is too expensive; better to build a computer instead.
Cutting branch offices, too, seems like sound business. Barclays’ main regulators within the UK's Prudential Regulation Authority and Financial Conduct Authority and the US's Federal Reserve probably don’t much care whether it has offices in Moscow or Brazil but both economies are going nowhere fast, and maintaining the infrastructure is costly.
The bank steered that the cuts were simply an acceleration of the existing strategy for Barclays and the investment bank, but it’s hard not to see it as a way for the new boss, Jes Staley, who joined on December 1, to stamp his mark on the firm.
In other ongoing tales of woe, Deutsche Bank guided this week that it was headed for a full year loss, with the legal bill climbing by another €1.2bn to more than €5bn for 2015.
By the standards of the US mortgage backed securities settlements, €5bn is towards the low end, but while the US firms are already past the worst of it, nobody quite knows how bad things will be for Deutsche. The firm took the biggest hit of any institution in the Libor scandal, and revelations about the bank’s attempts to conceal parts of the scandal from regulators do not inspire confidence.
The market, however, chose to focus on the underlying poor performance. Deutsche also took the opportunity to guide revenue estimates lower. Certainly chief executive, John Cryan will be glad to put the year behind him when Deutsche publishes full 2015 results on January 28.
One questions to what extent Deutsche is suffering from idiosyncratic factors (such as the turmoil created by the internal overhaul, and rapid personnel change in some parts of the business).
Results roulette
The US firms which reported this week (Goldman, Morgan Stanley, Citi and Bank of America) all seemed to do ok in the fourth quarter. Results for every investment banking business line were all over the place — DCM varied between 12% up at Citi to 31% down at BAML (43% down at JP Morgan the previous week).
Fixed income was between 20% up and 8% down, while equities was somewhere between 29% up and 3% down. Advisory was the only unit that was consistently in positive territory – hardly surprising, given the record breaking volumes.
But the overall picture doesn’t look too bleak. Markets in the fourth quarter weren’t exactly supportive, but the banks brought home the bacon nonetheless. If Deutsche has lost ground to US rivals, what’s the explanation?
Whatever it is, JP Morgan intends to keep it that way. GlobalCapital’s David Rothnie read this week’s reshuffle of JP Morgan’s corporate finance team in EMEA as a way to avoid complacency and keep a potentially resurgent Deutsche off the top spot in 2016.
The biggest change was Tim Wise, the chairman of JP Morgan Cazenove, stepping down. But Wise’s departure has allowed JPM give three other senior bankers a chair or vice-chair title.
Moving them up and onto a senior client role has freed up management space as well, with Conor Hillery promoted to head of EMEA FIG, and Jake Donavan promoted to head of EMEA industry coverage for corporates.
The changes also affected JP Morgan’s equity capital markets product team, as well as the management of corporate finance. An internal memo on Thursday announced the creation of a new “EMEA strategic investors” group, folding private equity in with sovereign wealth funds and family offices.
Harry Hampson, the head of sponsors, will run the combined group, while ECM head Klaus Hessberger will become co-head of sponsors with Axel Beck, leaving Anchintya Mangla as sole head of ECM.
Manuel Esteve, head of EMEA equity syndicate, will become co-head of equity solutions, leaving the job of EMEA equity syndicate head vacant.
BAML also had changes to its ECM lineup, with James Fleming and Sam Losada becoming co-heads of EMEA ECM. Craig Coben, who has been running EMEA on an interim basis, remains global co-head.
Losada will relinquish his role as co-head of global rates and currencies origination, to focus on equities – his background. The memo announcing the appointments thanked Losada for building “strategic equity solutions” (private side equity derivatives for corporates) into a top three business since he joined from Nomura in 2010.
News was mercifully quiet on the regulatory side this week — a little too quiet, for managers of swaps businesses, anxiously awaiting guidance from the regulator on just how margin rules are supposed to work.
The European rules have a hard stop in September 2016, but ESMA, which is supposed to outline how to comply with them, has yet to publish its final thoughts on the subject. A forced delay looks like the only solution.
Elsewhere, the Basel Committee released reports on fixed income liquidity and electronic bond trading. It’s nice to see a body at this level joining the regulatory hand-wringing, but GlobalCapital couldn’t find much in either report to be excited about.
The Committee suggest liquidity is influenced by regulation, and note with interest the rise of automated trading, principal trading firms and the like. They suggest a close monitoring of conditions.
Like all liquidity reports, where public or private, Basel’s attempt is hampered by the lack of data from Europe. Everyone, without exception, uses a combination of TRACE reporting from the US market and the partial data streams from the likes of Trax and MarketAxess.
Who knows, maybe transparency would breed liquidity?