LONDON, Oct 26 (IFR) - Barclays said it needs to ramp up investment in its trading platforms to revive its markets business, after admitting it has let slip a technology edge it had five years ago.
Barclays’ markets revenue in the third quarter slumped 31% from a year ago to £977m, with weakness in all areas. That was a steeper fall than at its US rivals.
The British bank’s macro revenues fell 40% and in credit the decline was 22%, for a combined drop of 34% - steeper than a 22% fall across the five big US banks.
Equities revenues fell 24% from a year ago to £350m, its weakest quarter for two years and substantially lagging a flat performance on average by US rivals.
Barclays’ banking fees, which includes M&A advisory and equity and debt underwriting, were £607m in the latest quarter, down 6% from a year ago. US banks reported an 8% increase on average.
The weak trading results dragged Barclays’ shares 5% lower by late morning on Thursday. “The investment bank does the damage,” said Ian Gordon, analyst at Investec.
Barclays chief executive Jes Staley pinpointed four “drivers” to get the markets business firing again, including increasing spending on technology.
“Five years ago, Barclays had one of the leading technology trading platforms, whether it was in fixed income or equities or foreign exchange. We let that investment slip and we are going to re-engage investing in our trading platform,” Staley told reporters on a conference call after the results.
A new management team for markets has been put in place and Staley said other drivers to rebuild the business include reallocating about £20bn of risk-weighted assets from the corporate loan book to higher return areas of the investment bank, which was previously announced.
He said he also intends to add balance sheet leverage of £50bn in the markets business over the next couple of quarters, and to expand some products and services. That will be in areas that have little risk associated with them, such as repo financing or investment-grade securities, he said.
But Staley and investment bank boss Tim Throsby are also encouraging bankers to take more risk, after years of being risk-averse. Indeed, the bank is considering pushing deeper into riskier distressed debt trading and structured credit products in the US, including collateralised debt obligations, Bloomberg reported this week.
Staley said a return to “more normalised levels of volatility and volume trading” will help improve markets revenues.
The changes for the markets business are part of a broader plan to improve Barclays’ profitability. The bank set new targets to lift return on tangible equity (RoTE) to 9% in 2019 and 10% or more in 2020.
“With restructuring done, now the focus of this management team is squarely on generating improved profitability,” Staley said.
The bank’s RoTE was a negative 1.4% in the first nine months of this year, or positive 7.1% excluding losses from the sale of its African business and UK insurance mis-selling compensation. The corporate and investment bank’s RoTE was 8.4%, compared with 9.4% for UK retail and 19.3% for the consumer, cards and payments business.
Barclays reported a pre-tax profit of £1.1bn for the third quarter, up 32% from a year ago, thanks to lower costs and reduced litigation expenses.
Legacy misconduct issues continue to dog the bank, however. It announced a US$105m settlement with the US Federal Energy Regulatory Commission to resolve an investigation into the pricing of electricity prices in the western US. Barclays had fully provisioned the cost, but it has been aggressively fighting the allegations for more than four years. FERC had proposed a US$435m fine for alleged manipulation.
“It was reasonably contentious for quite a period of time, but we’ve reached a settlement we are comfortable with,” Staley said, declining to comment further. (Reporting by Steve Slater; Editing by Philip Wright)