After what was promised to be a “vigorous” search for a new chief executive, Barclays has plumped for an internal candidate; Antony Jenkins, the “nice guy” of banking who previously led its retail business. Bob Diamond’s baby was the investment bank, the same definitely can't be said of his successor.
Jenkins will be paid a salary of £1.1m (compared to Diamond’s £1.35m), with the potential to earn a bonus of up to 250%. All the quotes in Barclays’ statement this morning point to Jenkins’ “intimate knowledge” of the business and his “excellent track record” in transforming the retail and Barclaycard business. But what does his appointment mean for the future of Barclays’ investment bank?
The growth engine is stalling and may not be restarted
Barclays’ investment in increasing headcount in its equities and M&A business appeared to be paying off; it had been growing market share in both this year, despite revenues declining by 12% and 11% year-on-year, respectively. Despite being touted as one of the big hirers in the City, headcount in the investment banking division has been declining – at the end of 2010, there were 24,800 employees, a figure that shrunk to 23,300 in June this year.
In its second quarter results, Rich Ricci insisted there wouldn’t be “any significant headcount reductions” or shrinkage in business areas, but question marks will remain over whether the bank will return to its traditional strengths in fixed income currencies and commodities, and put the expansion into equities (which is suffering more than most business areas industry-wide) and M&A on the back burner.
Previous reports suggested that the appointment of Barclays’ new chief executive was ultimately in the hands of the regulators, who would make appointing an ex-investment banker – either Rich Ricci, Barclays’ head of investment banking, or someone like Bill Winters, who was consistently linked with the job – difficult. This doesn’t bode well for future growth in the division.
Barclays’ parsimonious approach to pay is unlikely to change any time soon
Barclays’ investment bankers have been more productive this year, yet the firm is set to pay them less. Over the first half, it accumulated an average of £108.7k per head, compared to £121.5k for the same period in 2011. Jenkins is unlikely to vociferously challenge the view of its new chairman, David Walker – essentially that investment bankers are overpaid.
On his appointment, he gave an interview to the Sunday Times, during which he questioned the notion that Barclays has to pay its investment bankers well in order to stop talent moving elsewhere.
“The argument that people will be bid up and lured elsewhere carries much less weight than it did even a year ago,” he said, “…people are going to find the threat of going off in a huff much less successful….”
Maybe so, but there are already signs that Barclays IS losing staff in its investment bank. The £65k cash cap on bonuses (mitigated to some extent by the vesting of deferred awards) hasn’t sat well, as evidenced by the departure of an entire commodities team to an independent trading firm. There’s also the possibility that many bankers in Europe may simply upsticks to the US or Asia.
Investment bankers may not be able to earn a great deal more by moving to another investment bank, but where other (higher paying) options are available, they’re likely to take them.
Barclays’ investment banking culture may actually change
Despite the fabled ‘no jerks’ policy at Barclays, the knives came out in the wake of the Libor scandal and Bob Diamond’s subsequent departure. One ‘banker’ told the Independent that there was:
“Management by intimidation, even physical threat, punishing hours and a ruthless grading system that left workers in terror of their annual appraisals. Employees were often reduced to tears by the end of a day, but only when they had departed from the building. Such weakness would not be tolerated inside."
Anthony Salz has, of course, been appointed to address the culture at Barclays, including scrutinising its bonus structure and how this influences behaviour. Despite Bob Diamond being the main instigator of the investment bank’s growth, insiders have told us that he was not, by any means, universally popular. Jenkins’ appointment could be a breath of fresh air.
On the other hand…
Barclays’ investment bank is still responsible for around 50% of the profits across the group and Jenkins is unlikely to jeopardise this by cutting back too deeply. What's more, as the Financial Times points out, he'll be working very closely with David Walker who has extensive investment banking experience.
It’s still one of the most active recruiters in the City, with over 100 vacancies currently (even if most of them are in IT).
Another positive sign is that graduate recruitment is remaining stable. We’re told that 250 places are up for grabs in the 2013 analyst programme, which is consistent with the number recruited this year.