Throsby’s investment banking to-do list at Barclays

Barclays' Canary Wharf offices

Barclays’ Canary Wharf offices

In leading the investment bank at Barclays, Throsby, who has a near-30-year track record in trading and was most recently JP Morgan’s global head of equities, will take a post vacant since the March 2016 departure of Tom King. New York-based King is said to have quit over concerns about the UK’s new Senior Managers Regime, which holds banking bosses personally responsible for wrongdoing on their watch.

Group chief executive Jes Staley – another JP Morgan alumnus – has since overseen the investment bank, also heading the larger corporate and international business on an interim basis with deputy Joe Gold, who is now retiring. Throsby marks the “last remaining big piece in the total management refresh by Jes”, one analyst told FN, adding: “He now has the team to build his strategy around, but the environment is tougher than what he may have anticipated pre-Brexit.”

Here are some of the items Throsby will want to get to grips with as he settles into the new role.

Boosting the investment bank’s returns

Whatever the future make-up of Barclays’ investment banking business, making the division sweat harder will remain near the top of the agenda. When Staley addressed shareholders at Barclays’ annual general meeting in April, he told them the bank needed to “continue to improve the returns in our corporate and investment bank”.

In 2015, the standalone investment bank’s adjusted return on equity was 5.6%, according to that year’s annual report. That was more than double the 2.7% posted a year earlier, although group chairman John McFarlane described that result as “improved, but still substandard”. The recent full-year high for the business’s ROE was 9.6% in 2012.

One UK banks analyst, who did not want to be named, said: “One of the biggest challenges facing Barclays and the rest of the IB industry is how to return acceptable profits and ROE while absorbing the revenue, cost and regulatory pressures post-Brexit. This is a problem Jes is very focused on and Tim’s experience in running a top-tier equities franchise will help.”

Helping Throsby here is the fact that Barclays’ bankers have already had the importance of focusing on returns drummed into them.

Speaking to Financial News earlier this year, Crispin Osborne, co-head of banking for Europe, the Middle East and Africa, said: “If your line banker sitting in somewhere like Milan or Paris isn’t asking whether a potential assignment is a good use of their time and whether our efforts with a client hit the right return over the cycle, we’re not managing the business in the right way. We have to encourage that returns culture all the way down through the organisation and that message is really getting through.”

Keeping costs in check

Getting the investment bank’s returns up is likely to call for keeping costs down, given the revenue pressures facing the industry as a whole.

Speaking on Barclays’ second-quarter earnings call in July, Michael Helsby, Bank of America Merrill Lynch’s co-head of European banks research, described the issue of costs in the investment bank as “so important in improving the ROE”.

In response, Staley noted that falling year-on-year costs during the second quarter came mostly from a reduction in staff numbers, which dropped by 10% over the first half of the year, although he added there was “a way to go” on the cost front.

He said in the results announcement that “eliminating costs” across the group would remain a priority, and would come not only from reduced headcount but also efficiencies in technology. Here he has another ex-JP Morgan man, chief operating officer Paul Compton, looking at the options. But if the axe must fall in the investment bank, Throsby will be wielding it.

Clarifying Barclays’ image…

Atlantic Equities analyst Chris Wheeler pointed to the bank’s various transformations since its acquisition of Lehman Brothers in 2008, noting that it expanded into equities and advisory in Europe, the US and Asia in the years that followed, before shrinking in Asia and continental Europe and these days reselling itself as a transatlantic bank.

Wheeler said: “To be frank, this feels like a bank creating a strategy which reflects the business it has, rather than the business it would like to have, not an uncommon phenomenon in banking. The problem is this means the business is neither global or local and this does pose some questions.”

Throsby needs to pin down Barclays’ identity, at least its attitude to corporate and investment banking. The point was made about the banking group as a whole by Warwick Business School professor Mark Taylor, who in March told the BBC that Barclays would have to deal with its identity crisis if it wanted to satisfy shareholders, given that its recent leaders have included lifelong retail banker Antony Jenkins and now Staley, a career investment banker.

“To go through four CEOs, four leaders, in such a short period of time [five years] puts one in mind of Chelsea Football Club rather than a major financial institution,” Taylor said.

… and his own strategy

Throsby will also have to “win the hearts and minds” of people in the investment bank, Wheeler added, pointing out that those in FICC will be particularly cautious of an equities professional taking the reins.

“That will inevitably raise concerns about whether he is more likely to make further cuts in a business he is less familiar with than the equities business which he understands very well,” Wheeler said. “The advisory and origination bankers will just be hoping for stability and no more reputational issues.”

An added pressure for Throsby, according to Wheeler, will be the task of going about his role under the eye of Staley: “What will be interesting is whether Jes Staley will be able to observe Tim’s progress with the critical eye of a CEO or be tempted to become more involved in the discussions on strategy, given his background.”

Handling Brexit

By the time Throsby takes the reins, the City may have a little more clarity on what the relationship between the UK and the European Union will look like and how this will affect banks and other financial firms in the UK. He will have a key seat at the table as the bank’s top brass work out how best to respond to the political developments.

Staley said on the bank’s second-quarter earnings call that the bank was “committed to remaining a strong participant” in European investment banking, and that the best Brexit outcome would be to “retain access to the European capital markets by UK regulated banks, as well as reciprocal continued access to the hugely important British capital markets for European corporates and European banks”.

If that can’t be achieved and the bank has to change its operations to keep access to European markets, Staley added that it would be “by comparison straightforward and significantly less costly” than setting up a UK ring-fenced bank or a US holding company: “If we do require a build-up of capability in another EU jurisdiction as part of our plans, then we can do so, and we will.”

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