Barclays Investment Bank Revamp: Strategic Shift for Long-Term Growth

Barclays has outlined a plan to revamp its investment banking division to boost profitability by focusing more on capital-light areas such as advisory and equity capital markets (ECM) and reducing its reliance on debt underwriting. Co-heads Taylor Wright and Cathal Deasy aim to add £700 million in revenue by 2026, a significant pivot intended to align the bank with more capital-efficient business models. Currently, 54% of its investment banking revenue comes from debt capital markets (DCM), compared to 38% for U.S. peers, creating a need for rebalancing to compete more effectively.

The restructuring is part of a broader strategy set by CEO C.S. Venkatakrishnan, who intends to lower the investment bank’s risk-weighted assets (RWAs) from 58% to 50% of the group’s total by 2026. The bank is also emphasising cross-selling and expanding its U.S. business, where 40% of its priority clients are based, but generate less than 10% of income.

This strategic pivot is well-timed given Barclays’ declining fee share, which dropped more than 1% from 2019 to 2023. The advisory and ECM push should help the bank diversify its income sources, reduce its dependence on capital-intensive products, and potentially capture more market share from U.S. investment banks amid the ongoing economic recovery.

MY ANALYSIS

Barclays’ strategy to reduce its reliance on DCM is a prudent move, considering the lower returns and higher capital requirements associated with these products, especially in a rising interest rate environment. Shifting towards advisory services and ECM not only enhances returns but also helps mitigate volatility tied to cyclical credit markets. Additionally, a U.S. expansion should unlock substantial revenue potential if executed efficiently, as the American market is a lucrative area with strong deal activity. However, success hinges on the bank’s ability to effectively leverage existing client relationships while building new ones — a challenging but necessary step to sustain growth.