Barclays inches forward as rivals inch back

April 27, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Jes Staley’s first full quarter as Barclays’ boss was less than stellar, but still starrier than that of investment banking peers. The UK lender managed only a sparse 3.8 percent return on equity at group level. Yet revenue from securities trading and corporate finance was down just 6 percent relative to an aggregate one-fifth drop at Wall Street’s five biggest banks. And group returns should tick up if Barclays can keep selling unloved assets fast.

One reason to temper enthusiasm is that investment banking prowess has been a mixed blessing this year. Even though Barclays recorded an eye-popping 46 percent rise in credit trading revenue, its pre-tax profit was still down almost a third year-on-year. Taking market share in competitive debt capital markets is an achievement, but the bank only managed to make a return on tangible equity of 7.3 percent in its broker-dealer division. In other words, the business is still destroying shareholder value: its standalone cost of tangible equity could be almost double that.

Still, Staley’s haste to shed non-strategic assets should enable other higher-returning businesses to shine. Barclays still has to more than halve its non-core risk-weighted assets to get to a 20 billion pounds target by the end of 2017. But agreed or inked deals to sell off the bank’s Asian wealth management business and French, Portuguese and Italian retail operations will chop another few billion pounds off the total.

The potential for big losses from disposals, such as those suffered recently by Credit Suisse, can’t be discounted. Sometimes, though, speed should take precedence over price. And an already-announced dividend cut should make it easier for Staley to avoid slipping behind on capital.

There are other justifiable doubts about Barclays’ longer term performance. One is whether investment banking will ever generate economic profit without a lot more surgery – a point underlined by comments made by Bank of England Deputy Governor Jon Cunliffe on April 26. Another is the deteriorating UK retail banking and consumer spending environment, where Barclays’ top line was down 2 percent. But at least on this evidence, Barclays is heading in the right direction.

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