After old boss foes, Barclays traders have a new champion

Bloomberg

Jes Staley departed Barclays Plc under a cloud because of an ongoing probe into his relationship with deceased offender Jeffrey Epstein. But his strategy for the British lender — to champion its investment bank — is set to outlast him.
As his replacement as chief executive officer, CS Venkatakrishnan, prepares his maiden quarterly earnings presentation this week, Staley’s blueprint will almost certainly remain untouched. “Venkat is basically Staley’s man without the baggage and is seen to be a safe pair of hands,” says Alan Beaney, CEO of RC Brown Investment Management, which has held Barclays shares since 2012.
In business terms the bank “was making all the right moves” under its old boss, Beaney adds, so there’s no pressure to change direction. Its traders and corporate bankers have had a good run.
And yet, with the pandemic trading boom starting to fade, the next two years will bring a different set of challenges for Staley’s low-key successor. Fahed Kunwar, banks analyst at Redburn, says there’s “an open question whether the market share gains” of Barclays in investment banking can continue.
Before being bumped up to CEO, Venkat (as he’s known to colleagues) ran the Barclays markets division, home to the trading team and a big revenue contributor. His first 100 days in the top job have shown his support for his former crewmates: He’s preparing to more than double last year’s rise in the bonus pool for traders and bankers, and he’s approved new ventures for its securities and investment banking units, including a platform to let clients profit indirectly from hedge funds.
Managing the expense of all this will be tough for Venkat as he engages in a fierce tussle for talent with Wall Street peers.
Venkat made his name as a world-class risk manager when working at JPMorgan Chase & Co., where he warned about the London Whale. Nevertheless Barclays hasn’t been immune to trading mishaps during his start as CEO. It lost about $100 million on currency hedges after US private equity firm Advent International and Singapore’s sovereign wealth fund GIC withdrew their bid for Swedish Orphan Biovitrum AB in December, Bloomberg News has reported.
One notable bright spot for Barclays and other British banks this year is the rise in Bank of England interest rates as policymakers respond to rampant inflation. UK lenders’ domestic retail businesses will benefit from the country’s first back-to-back rate hikes since 2004. Alongside the return to a more normal economy as the pandemic recedes, investors are confident about better profitability and share buybacks.

Managing the expense of all this will be tough for Venkat as he engages in a fierce tussle for talent with Wall Street peers. Bloomberg Intelligence estimates that costs in the corporate and investment bank may have jumped as much as 5% last year, although the analyst consensus is a 2%-3% rise. “Barclays has continued to invest in its equities franchises — and prime (broking) business — and must demonstrate the value-add by outperforming an impending slowdown,” BI’s Jonathan Tyce and Mar’Yana Vartsaba wrote recently.
Other parts of the investment bank will face similar scrutiny at the earnings presentation. While the Barclays advisory business has done well from the 2021 boom in M&A and share offerings, analysts estimate that the company’s fourth-quarter fixed income, currency and commodities revenue fell 14% year on year, according to Bloomberg-compiled data. Citigroup Inc. recently lowered its estimate for markets revenue overall.

Some say the global trend toward tapering central banks’ massive bond purchases could help out Barclays traders too. “Capital markets, money markets, even foreign exchange markets are likely to see volatility and uncertainty,” says Ismail Erturk, senior banking lecturer at the University of Manchester. “And Barclays is likely to exploit these opportunities.”
Others argue that a return to health of the British retail bank may be awkward for Venkat if his traders don’t keep delivering. Staley saw off an activist challenge to his pro-investment bank strategy as the division’s profits propped up the underperforming domestic lender. But times can change.
“It’s possible that with Staley gone and trading revenues slowing, coupled with rising rates benefiting the UK business, that question marks on the group capital allocation will rear their head again,” Redburn’s Kunwar says.