World’s Best Bank for Markets 2020: Barclays

Whatever your opinion of a markets business, it seemed to be vindicated by the first half of 2020. For glass half-full types, it was yet another indication of the valuable and counter-cyclical earnings diversification that it can bring, a reminder that in times of turmoil you do well if you are in the business of helping buyers and sellers meet.

For those who fret about the volatility of the income streams that equities and fixed income franchises produce and the investment in technology that is needed to compete at scale, it was confirmation that you were better out than in – or at least better being successful in a niche rather than trying to do everything.

Europeans broadly fit into the pessimistic category. But one bank in Europe has bucked the trend, the region’s last full-scale bulwark against the US occupation of sales and trading country. For its determination and success – so far – in rebuilding and making a fully fledged markets business work, Barclays is Euromoney’s choice this year as the world’s best bank for markets.

Compared with US peers, in revenue terms it is closest to Citi in equities and Morgan Stanley in fixed income, although still smaller than both. But it is eating into market share, particularly that of Bank of America. In the full year 2018, BofA markets revenues were more than twice those of Barclays. In the first half of 2020 that gap halved.

In Europe, Barclays’ combined fixed income and equities revenues outpaced all local competitors in the first half of 2020 and the whole of 2019.

It was in 2017 that Barclays set about reorganizing a franchise that had been starved of oxygen under former chief executive Antony Jenkins, who was replaced by Jes Staley in 2015. While some parts had previously been successful, there was little coordination, meaning that as a franchise it was failing to meet its cost of capital.

Tim Throsby’s arrival in 2017 at the investment bank injected a more aggressive appetite for risk and that appetite survived his departure in 2019, not least because the markets business – which has tripled its profitability since 2017 – was being backed by the very top of the firm.

Revenues in 2019 were up 14% from 2017, a rise only outpaced by Goldman Sachs. And the first half 2020 year-on-year leap at Barclays was bigger than all other banks, at 68%.

“Our results have demonstrated very quickly the underlying thesis that Jes Staley had for the markets business, which is that it was an important part of the diversification strategy for the firm as a whole,” says Stephen Dainton, global head of markets.

The business came into the rebuild short of the four things needed to make it work: capital, technology, leverage and people. “Jes began to put those back, and that helps to create a climate of consistency,” says Dainton.

Industry-wide, the markets wallet fell about 2% in 2019, but Barclays moved up one place to sixth in the Coalition rankings, behind the US firms. And if 2019 was in some ways a breakout year, it was the first quarter of 2020 in which the bank served notice to competitors that it intended to stay committed. Market share was up 210 basis points compared with the first quarter of 2019, a performance that beat the US peer average. Barclays starts from a lower base, it is true, but also faces a tougher battle because of that, because market share tends to accrue to those that are already the volume leaders.

There are still challenges. Barclays recently lost equities head Fater Belbachir to Citi after less than a year in post. And Dainton knows as well as anyone the importance of consistency.

“The key for me is demonstrating that the last 10 quarters of performance can be carried through into the next quarters,” he says.

The way Dainton tells it, the idea that sales and trading at scale must be dominated by the US banks was anathema to how Barclays thinks – and the project embarked on in 2017 was designed to prove it right.

“We had the support of the board and the executive committee to build an operating unit to compete with the five US banks that we felt were taking an unduly large market share,” says Dainton, who Throsby hired as head of equities in 2017, and who took over as markets head.

Part of that investment has meant new staff. But it hasn’t been all about a shakeout. The best performing business is arguably credit, run by Barclays veteran Adeel Khan.

Dainton believes in full service but concedes that it has its limits. He doesn’t need a commodities business, he argues. Rivals with decades of experience can make it work. But it’s not a fit for Barclays.

And he’s realistic elsewhere. He says he needs macro and rates depth in G10 but concedes he won’t be top. “I know we won’t be as big as a Citi or a JPMorgan in G10, but we can compete effectively,” he says.

Barclays is taking a long view on filling out the remaining areas where it wants to be competitive. Dainton is patient when it comes to building a business such as structured products. “I don’t care that I am 10th in that right now – next year I won’t be,” he says.

The bank has firmly rejected any withdrawal from offering a broadly full service. Barclays will not do a Deutsche. “Unless I am a boutique on a boutique cost architecture, I need to demonstrate to global institutional investors that I can transact in any segment,” says Dainton. “It has to be proportionately sized, but you have to have it.”