Barclays PLC's corporate banking arm performed well against its U.S. and European peers in the second quarter, strengthening CEO Jes Staley's case to remain committed to investment banking for the long term.
The investment bank saw a 25% rise in fixed-income revenue from its corporate and investment banking arm to £920 million, driven by a strong performance in credit and growth in securitized products.
This helped offset a weaker performance in the investment bank's equities trading operations, where revenues declined by 14% to £517 million. Equities also suffered by comparison — the year-ago quarter was exceptionally strong.
The return on tangible equity at the investment bank was 9.3%, up from 9.1% in the second quarter last year, after an 8% increase in income to £2.8 billion in the second quarter compared with £2.6 billion in the same period last year.
"Our investment banking business was the sixth-highest earner in investment banking fees globally and the fifth-highest in the U.S.," Staley said.
Barclays also said the investment bank had gained share of the total industry revenue pool against its leading rivals, and was now ranked seventh in global markets and eighth in fixed income and equities. It also gained share in banking fees and remained the No. 1 European bank for banking fees in the U.S., a position it has held since 2013. It also saw its highest first-half advisory fee share since 2014.
Activist investor pressure
Barclays has been under considerable pressure to justify its commitment to its investment banking business, particularly from activist investor Edward Bramson, who unsuccessfully sought a seat on the board in May after a year-long campaign for the bank to drastically curb its i-banking ambitions.
Other European investment banks have also been under pressure from investors to slim down their investment banking operations as they struggle to compete with U.S. giants, notably Germany's Deutsche Bank AG.
Staley confirmed that Barclays is aiming to take on a $20 billion slice of Deutsche Bank's prime brokerage business that services hedge funds.
"Yes, it's true that we gained some prime balances resulting in roughly that neighborhood [of $20 billion]. We get revenues Saturday, Sunday and holidays from it, it is very profitable and we will continue to pursue that business," he said.
The bank also said it expected to reduce overall annual costs for 2019 to below £13.6 billion, compared with its previous guidance of between £13.6 billion to £13.9 billion.
Barclays said it will continue to aim for a return on tangible equity of more than 9% for the full year. Group Finance Director Tushar Morzaria said this was achievable but noted that "there is work to be done in the second half," as profitability tends to be lower in the latter six months of the year.
Staley said the bank was well-prepared for Brexit even if the U.K. leaves the EU without an exit deal.
"We began working after the referendum to get the bank structured in such a way that we could deal with any possible outcome of Brexit," he said. "The bank is totally prepared for a hard Brexit."
He also said its Dublin subsidiary had been set up to handle its business in the EU, if necessary, and was now probably the largest bank in Ireland.