Barclays To Slash Trading Client Base By 7,000 In An Attempt To Boost Returns
Barclays (NYSE:BCS) may terminate its business relationship with as many as 7,000 low-profit trading clients in the near future as the bank continues to explore ways to improve returns for its trading business. [1] The British banking giant has been struggling to improve profits for its Corporate & International operating division (which houses its global investment banking and trading units) over recent years, and the move to focus on bigger, more profitable clients is expected to improve margins without sacrificing revenues. Notably, this trend has been quite common in the investment banking industry over recent years, with German banking giant Deutsche Bank also announcing plans to stop working with 3,400 clients earlier this month. [2]
We believe that Barclays is doing a good job prioritizing profit growth in a challenging regulatory environment for banks. The bank has other options open to reduce its cost-base further in the near future, including the closure of its alternative trading system Directex (something we detailed it in a recent article). We maintain a price estimate of $11 for Barclays’ stock, which is slightly below the current market price.
See our full analysis for Barclays’ stock
Over recent years, Barclays has implemented significant changes to its business model as a part of its ongoing Project Transform. A majority of the changes were targeted towards the investment banking division, which has been subject to stricter regulatory requirements and depressed activity levels in the wake of the economic downturn of 2008. The bank has focused primarily on cutting costs associated with doing business – something that led to an unspoken rule of a 10% return from every client it works with. [3]
Over recent years, Barclays has shrunk the number of clients it works with from a whopping 32,000 in mid-2014 to roughly 15,000 now. In fact, all major investment banks have scrubbed their client list in similar ways, and have also tiered clients to separate the ones that are most profitable ones from those that give low returns. [4] A majority of the 17,000 clients Barclays let go in the last 30 months were inactive – making the decision an easy one. It should be noted that as a broker-dealer, Barclays bears maintenance costs even for inactive trading relationships, which is why it is in the bank’s interest to close them. But as the bank recently upgraded the technology platform for its trading unit, it gained additional insights into the profitability of existing clients – helping it identify 7,000 clients that are not generating enough revenues to justify the costs associated with them.
Barclays is expected to tell these clients to either increase their trading activity, or to move their business elsewhere. Once Barclays has worked its way through these clients, it should see an improvement in profit margins one way or another. Interestingly, if the client base shrinks by 7,000, then the bank will have reduced the total number of trading clients from 32,000 in mid-2014 to roughly 8,000 around mid-2017 – a reduction of 75% in three years. Overall, this should have a positive impact on margins for Barclays’ investment banking division.
You can see how changes to Barclays’ investment banking profit margins impacts our estimate for the bank’s share by modifying the chart below.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
- Barclays braced to cut up to 7,000 trading customers, The Telegraph, Dec 19 2016 [↩]
- Deutsche Bank cuts ties with 3,400 clients in trading business, Reuters, Dec 2 2016 [↩]
- Barclays Severing Ties With Up to 7,000 Business Clients, Bloomberg, Dec 19 2016 [↩]
- An Inside Look at Wall Street’s Secret Client List, Bloomberg, Mar 24 2016 [↩]