The head office of Barclays in Canary Wharf |
First off: what he’s done. He has hired his own senior management team, mostly from his old shop of JPMorgan. They come with good credentials and are respected in the market. And it makes sense for him to surround himself with familiar and trusted faces. So what if it adds to the ‘recreating JP without that pesky Jamie’ narrative? There are worse ideas than that.
He has put his own mark on the reshaping work that was already underway, adding some £8 billion of risk-weighted assets to the scope of the bank’s non-core division (but without using that as an excuse to tinker with the wind-down timeframe), taking the bold decision to sell down Africa (a heritage operation for Barclays), and closing sub-scale country operations within the investment bank.
He has said many of the right things to shareholders and analysts, who have generally been appreciative. That’s lucky for him, as they have also had to be tolerant. Staley is not exactly reversing his predecessor Antony Jenkins’ intention to rein in the investment bank, but there is no doubt that it will be a more important part of the package under his tenure. Yes, running down the non-core division ought to restore group returns to double digits, but halving the dividend for two years to help finance that plan is a lot to ask investors to swallow.
He has said the right things to staff, too. His denigrators have occasionally questioned his capacity to manage a firm of the complexity of Barclays. But those working closest to him are supportive. There is a palpable relief in the investment bank that they are working with someone who gets it: he will need to be careful that this does not lead to alienation elsewhere.
His biggest achievement so far, however, is to have changed the tone of the conversation around Barclays. No longer is it dominated by talk of a scandal-plagued also-ran that has lost its way. The investment bank aside, it has strong core businesses in the UK and in credit cards as a foundation. That message is getting across.
Stuck stock
But the stock stays stuck. Along with much of the industry, Barclays trades well below book value. Staley can’t singlehandedly re-rate the sector, but to move the needle on his own firm’s equity there are several jobs still to be done.
First and most obviously, he needs to restore those group returns. On this he has articulated a plan: the run-down of the non-core division by the end of 2017. He should be given that time.
But in tandem with that, he needs to maintain – or improve – the returns in his core businesses. Cutting loose from the drag of non-core won’t be much help if returns in core have sunk in the meantime. And there’s no wiggle room: core is generating a return on tangible equity of almost exactly 10% right now. If conditions or performance worsen anywhere without a compensating improvement elsewhere, that double-digit target is at risk.
In the current environment, it might seem counter-intuitive to say that the best opportunity for lifting returns is in Barclays’ investment bank. But it probably is. The division’s ROTE in the first quarter was just 7.3%. But the bank is already bucking a trend: it has raised its share of investment banking fees in EMEA, putting it in fourth place. In cash terms, its fees are only down by 5%, while all the other top 10 firms are down by anything from 15% to 44%. The overall pool for the top 10 has plummeted almost 30%.
In part Barclays has done this by being savvy about how to get a foot in the door as it looks to prove its credentials in businesses where it has little reputation, like equity and M&A. Already it can show a track record of how pieces of niche business for big names have led to big mandates down the track. Staley must ensure that it can keep doing this.
Staley needs to reach agreement with the UK regulators on Barclays’ ring-fencing plan. Like his predecessor, he is not finding this an easy task. If he can’t get the Prudential Regulation Authority to agree to a mother/daughter structure, he at least needs to make sure the non-UK bank is not a capital orphan.
Finally, he needs to convince shareholders once and for all that they should move beyond questions of culture and conduct. That means continuing to explain in concrete terms what he is doing to make such matters a thing of the past. He has made restoring professionalism to banking a mission. A fresh conduct issue on his watch would be unforgivable – and quite possibly unsurvivable.
So far Staley has nailed the messaging – internally and externally. Now he needs to match all of his core businesses to that message.