Barclays: FICC is reborn as Macro

As head of the macro products group inside Barclays’ investment bank since May 2014, Mike Bagguley, who had previously run foreign exchange and commodities before being asked to run the revamped FICC group, has been at the centre of the biggest changes. He tells Euromoney: “The Macro products group has historically been an area of significant strength for Barclays, but also subject to the most profound structural market changes. This change is not limited to just challenges in regulatory capital and heightened cost of funding and balance sheet, but also in business model and how we engage with clients as execution moves more and more towards electronic aggregation.”

Barclays has not always been a first-mover in addressing some of these issues, Bagguley admits “but when we make up our minds, we move quickly and with determination to reach the right solution”.

He continues: “We substantially reduced RWAs and Macro is now much less capital consumptive. As to products, we asked ourselves about each business; not only can we do it and do clients need it, but also should we do it? And that’s why we exited physical commodities for example, even though we had built a good platform to deliver the product as in our base metals business.”

The bank decided it should not be trading in physical commodities as well as dealing in derivatives on those, lest it be seen, for example, to be seeking to profit from food shortages.

If we can build share in G20 rates and FX, that’s a very big prize for us Mike Bagguley

Bagguley found clients keen for Barclays – and other banks – to concentrate on fewer businesses they are really good at rather than constantly fight for customer support across businesses where Barclays had no great competitive advantage. 

“We have always been very good at G10 rates, G10 FX and also financial and commodities derivatives,” says Bagguley. “We have concentrated on products where we are strong and that are core to our customers. We have double-digit market shares in those markets and some 30% of our revenues in US rates come from clients outside the US, which no other bank has. For all the discussion around operational simplicity, we are actually very happy to do complex option trades for core clients where we have the competency and processing capability platform to operate efficiently.”

He says: “We executed the key changes in the Macro products group quicker than I thought possible and we have created good operating leverage to enable the management team to get in front of clients with our new proposition.”

One key step the bank has taken, he says, is to simplify client coverage. It has been a reversal of the old model for big universal banks that used to ask generalist coverage officers to sell many and varied products to customers. By trying to do more with less, the specialists are having their day again. “When we analysed it we found that our single product coverage teams are much more productive than generalists. Where the old ideal was that they would devote 30% of their time to credit, 30% to rates, 30% to mortgages and say 10% to FX, we have found that they always leaned towards their core speciality. That generalist coverage model actually needs much more management and so breeds bureaucracy and complexity. So we have cut headcount by 20% in some areas but productivity has actually increased beyond that.”

Yet no bank is ever, it seems, prepared to rest on its traditional strengths. Leaders, even of investment banking businesses that are shrinking, always want to grow somewhere. The vintage period for the Barclays Macro G4 rates and G4 FX businesses was back in 2009. The plan now is to export that strength to G20 rates and FX. 

“While our G4 rates and FX platform has always been world class, we are probably not the first bank that some customers think of for emerging and local markets,” Bagguley says. “But that is a massive opportunity for us because almost every client doing G4 rates and FX is also looking at G20 rates and FX and we need to do a better job on that.  If we are to remain a top-tier provider in rates, it is a vital strategic priority for us also to be able to execute for clients in emerging and local markets.

“If we can build share in G20 rates and FX, that’s a very big prize for us.”