I was out yesterday, so missed this story from Bloomberg. It provides a glimmer of hope for unemployed investment bankers. Someone is hiring bankers: Barclays Capital. Its aggressive strategy will reap huge rewards.
Barclays Plc, the U.K.'s second- biggest lender, plans to hire as many as 1,000 people, including investment bankers at its Barclays Capital unit, by the end of the year to compete in mergers advice and share sales.
Is that good news for U.S. bankers? Unfortunately, probably not. The article also notes:
"It would be tilted towards Asia. We need another six to 12 months to complete the build-out," Barclays President Bob Diamond, 58, said today in an interview. "Equities, advisory and emerging markets would be the areas."
After all, Barclays got plenty of U.S. bankers through its acquisition of Lehman's U.S. business. But talented U.S. bankers interested in Asia or other emerging markets might have a shot.
So why is Barclays doing so well? For a few reasons.
No Government Imposed Compensation Rules
First, it is not subject to any government imposed compensation rules. So any bankers wishing to flee places like Citigroup or Bank of America can run into the open arms of Barclays. The Bloomberg article says:
Barclays Capital has been hiring M&A bankers from Citigroup Inc. and Morgan Stanley in London to expand its European advisory business. The firm named Morgan Stanley's Mark Warham and Citigroup's Matthew Ponsonby co-heads of European M&A in May.
Fewer Bad Subprime Mortgages
Second, although it had some trading losses associated with toxic securities, Barclays never had as bad exposure to U.S. subprime mortgages as those banks leading the charge in originating subprime mortgages. Those banks include behemoths like Citigroup, Bank of America and JP Morgan. Even its chief British competitor HSBC had major U.S. mortgage losses due to its ill-fated acquisition of Household Finance at the height of the boom.
It Can Stomach The Business
Third, it is comfortable with investment banking risk. Bloomberg reports:
"Barclays has approached the task of building up its investment banking business much more aggressively" than Nomura Holdings Inc., which bought some of Lehman's assets in Europe, Roy Smith, a finance professor at New York University's Stern School of Business and a former Goldman Sachs Group Inc. partner, said July 24.
"Diamond is clearly pursuing the capturing of market share from a shaken up industry, and is starting from a substantial position in the global credit markets."
Some other banks out there who have not had as traditionally had as strong an investment banking platform certainly aren't willing to change their cultures now. Bank of America and HSBC come to mind. Barclays, however, signaled that it wants to be a serious competitor in the U.S. investment banking space through the acquisition of Lehman's talent after its collapse. What's more impressive is that, unlike Bank of America's acquisition of Merrill, Barclays seems to be doing a decent job of retaining that talent, and even acquiring more.
Lehman Was A Huge Score
Finally, that Lehman purchase itself was a great deal for Barclays. I would argue that, out of all of the acquisitions that resulted from the financial crisis, Barclay's acquisition of Lehman's U.S. business was the best. It got some prime Lehman real estate (alone valued at $1.29 billion) and cherry picked its best U.S. talent out of 9000 employees for a paltry $1.35 billion. Lehman always had some of the most talented bankers in the U.S., so Barclays was instantly a major player in the U.S. investment banking market.
It also managed to take on less baggage than if acquiring Lehman before bankruptcy. For example, Bank of America had to deal with Merrill's entire ugly balance sheet by acquiring it outright. Barclays got a better deal, with fewer bad assets swallowed through its deal.
For these reasons, I think we'll see Barclays continue to grow as a major player in investment banking in the years to come. It has the right attitude to compete in the market and most of the talent it needs to succeed.