In quiet times, Barclays bets on investment banking in Brexit UK
Barclays Plc is taking a contrarian bet that Britain’s vote to leave the European Union will help it win more investment banking business in its home market, despite the sharp slowdown in deal activity since the referendum.
The British lender has reshuffled some of its top investment bankers so they can focus on the UK, anticipating that the weak pound and a quiet 2016 will lead to a rise in dealmaking and share listings next year even as the country faces its biggest political and economic shake-up since the Second World War.
At the heart of the strategy is a plan to win more advisory business from British companies the bank already lends to, with Alisdair Gayne leading the charge as head of UK investment banking.
Gayne joined Barclays from Morgan Stanley in 2010, tasked with building out its corporate broking franchise, a role he will retain. Largely a UK phenomenon, corporate brokers act as intermediaries between public companies and their institutional investors. They are meant to be a corporation’s trusted adviser, built up over years of being its eyes and ears in the market.
Although it’s not a particularly lucrative business on its own, the relationships built in corporate broking can be used to clinch big ticket jobs from the company when they decide to pull the trigger on equity raisings and dealmaking.
Since joining Barclays, Gayne has been challenging the grip of the top three brokers in the UK — JPMorgan, Bank of America Merrill Lynch and UBS — on the largest British companies. Barclays is now ranked number 5. So far in 2016, the bank has won new corporate broking mandates, 8 including tobacco maker Imperial brands and chip designer ARM, which is being taken over by Japan’s SoftBank, a deal the UK bank also won a mandate as adviser on.
Gayne is now being tasked with using corporate banking relationships as well as broking relationships to win more investment banking mandates.
“In the UK we’re not taking full advantage of the big opportunity offered by the strength of our corporate bank,” John Mahon, Barclays head of corporate and investment banking for Europe, Middle East, Africa and Asia, said last week.
“Those firms ahead of us in UK investment banking aren’t involved to the same extent in corporate banking,” he said in an interview. “The coordination between corporate and investment banking needs to improve.”
Barclays ranks a lowly ninth so far this year in advisory for announced UK target takeovers and eighth for equity capital market business, in value terms, trailing heavyweight US investment banks as well as boutique advisory firms.
The new drive is part of the “Transatlantic” strategy announced by Chief Executive Jes Staley in March to focus Barclays work on Britain and the United States. In the third quarter, 54 per cent of the bank’s overall revenues came from its UK business and 31 per cent from the Americas.
The value of mergers and acquisition deals between UK companies has plunged 67 per cent to a 30-year low since the Brexit vote in June, according to Thomson Reuters data.
Overall, UK investment banking fees earned in the UK are down 14 per cent so far this year to total $4.1 billion or 5.5 per cent of global investment banking fees and 22.8 per cent of the Europe, Middle East and Africa (EMEA) fee pool.
Back in 2000, UK investment banking fees represented 9 per cent of the global fee pool and 26 per cent for EMEA, according to Thomson Reuters data.
Gayne sees that turning around next year.
“There are a lot of situations where we see companies preparing for next year... we see significant upside in UK M&A and equity deals,” Gayne said.
At the heart of the strategy is a plan to win more advisory business from British companies the bank already lends to, with Alisdair Gayne leading the charge as head of UK investment banking.