Like nearly every other investment bank on the street, Barclays management are likely to have spent the morning of the results watching their share price and ruefully wondering what things would have looked like if the bankers had just kept off their mobile phones and checked their paperwork thoroughly. The cost of “litigation and conduct charges”, driven by a combination of the WhatsApp investigation and sorting out the mess of illegally issued securities, was £1.6bn, and seems to have turned what could have been a pretty good quarter into an earnings miss.
As with Barclays' peers, it was the FICC traders who were the real stars of the first half, particularly in rates, forex and macro products. Fixed income trading revenues were up 71% on last year. Other revenue lines saw much more of a middle-of-the-pack performance, with equity trading revenues down 16%, advisory up 8% and debt capital markets down 34%.
The rates traders were helped by so-called “good volatility” in the first half, but Barclays overall risk appetite seems to have fallen. The size of trading portfolios fell from £147bn this time last year to £126bn as of the end of June. And it seems that employees are sharing the pain with shareholders; adjusting for the compliance costs, total operating costs fell 8%, while the upfront bonus charge for the period (without the effect of past years’ deferred compensation) fell 15% from £824m to £705m.
Overall, it feels like a “wait and see” set of results for bankers. Obviously the environment of the first half of 2022 was pretty unique in revenue terms. But revenue diversification is working; the fixed income business did enough to ensure that overall investment banking profits rose. And Barclays seems to be trimming costs rather than slashing. So far, the whole industry is keeping its nerve. We’ll have to see whether this can survive another six lean months.
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