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Barclays' feeble quarter is a reminder of the restructuring beast in the background

Barclays is supposed to be cutting £0.7bn of costs from its investment bank, but it hasn't made much progress yet. Today's first quarter results show operating costs in the business were just £31m lower in the first quarter of 2024 than the same quarter of 2023. Only another £670m to go.  

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As costs are extracted, Barclays aspires to grow revenues in areas like M&A, European rates, equity derivatives, and securitized products. Today's results are a reminder that this may not be so easy. While Deutsche Bank turned in a strong quarter, Barclays did not. 

As the chart below shows, Barclays underperformed rivals in every area of its investment bank in the first quarter, except for equities sales and trading. Here, results were flattered by a one-off £125m gain from its ownership of Visa shares. In fixed income trading, M&A, and equity and debt capital markets, Barclays' performance looks woeful.

There are some valid reasons for this: Barclays' fixed income trading business is macro-oriented and Deutsche Bank's macro traders also did badly.  In capital markets and M&A, Barclays blames strong "comparator years" and a "falling fee pool." But Deutsche Bank increased M&A fees 30% year-on-year; at Barclays they fell 13%. 

It's a reminder that activist investor Edward Bramson was campaigning for Barclays to embark on a Deutsche Bank-style restructuring and slimming down of its investment bank before he gave up and disappeared in early 2021. Deutsche Bank is thriving after its own restructuring; Barclays looks enfeebled.

There is some good news. The investment bank did, at least, meet the return on equity target of 12% set by CEO CS Venkatakrishnan in the first quarter. 

However, costs in the investment bank consumed 60% of revenues, versus a target of "high 50s %." Barclays hasn't finished restructuring. In fact, it's barely begun.

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AUTHORSarah Butcher Global Editor

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