Barclays must either cut £943m in costs at its investment bank, or add £1.6bn of revenues
As we noted today, Barclays seems to have been very generous with bonuses in its investment bank last year. Someone at the bank was paid between €17m and €18m, even though the bank said today that it's only lifting the bonus cap for the year to come.
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Despite this generosity, Barclays still has a long way to go in achieving its cost targets. The bank reaffirmed that it intends to achieve a cost income ratio in the business in the high 50s by 2026. Last year, however, the cost income ratio was 67%.
Source: Barclays
If Barclays wants to meet the investment bank's cost target, it must therefore either increase its revenues or cut its costs. Based on 2024 costs of £7.9bn, revenues would need to rise by £1.6bn if costs are to remain the same. Alternatively, if revenues in the investment bank remain static at £11.8bn, costs must fall by £943m.
Both seem painful. Growing revenues is the preference. However, Barclays has also committed to cutting £700m in costs from its corporate and investment bank between 2024 and 2026.
Barclays' CEO CS Venkatakrishnan said today that the bank particularly aspires to increase revenues in fixed income trading and in US investment banking, where Barclays makes 68% of its investment banking revenues.
Barclays' fixed income trading revenues fell 4% year-on-year in 2024, even as banks like Deutsche increased revenues in the area by 9%. Venkat said this was partly due to "subdued" macro revenues and to the fact that macro trading only picked up later in the year.
Barclays' fixed income woes seem mostly related to the first quarter of last year, when revenues in the business fell 21%. At the time, Barclays blamed this on a challenging comparable quarter and weak performance in macro trading. Coincidentally, or not, Barclays' EMEA head of rates trading, Carl Scott, "decided" to leave in March 2024. Barclays then declared itself to be hiring and added people like Ben MableyBen MableyBen Mabley from Goldman Sachs, along with Ben Hutson from Garda Capital Partners and Liam Webster from Morgan Stanley. They will be under pressure to perform in 2025.
Big hiring at Barclays seems unlikely in 2025. Venkat said today that the bank invested heavily in its investment bank between 2021 and 2023. In markets, this investment went into technology. In banking, it went into people. This is the year when those past investments should come to fruition, he said.
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