Speak to any financial regulator and they will tell you that their post-economic crisis ambition is for banking to become boring. Events at Barclays suggest they're starting to get their way.
Hugh 'Skip' McGee, the bank's top-paid executive, said yesterday he will quit at the end of the month as chief executive officer of the Americas division at Barclays because his job has changed, saying:
“My focus has always been on clients, but given the need for Barclays leadership to focus on regulatory issues for the foreseeable future, I have decided that it is time for me to move on to new challenges.”
The shift in culture comes from the top of the firm; Antony Jenkins, who took over as Barclays CEO in August 2012, came from the bank's retail banking division, in contrast to his predecessor, Bob Diamond, who earned his stripes as a bond trader at Credit Suisse and Morgan Stanley. Barclays is setting up a "bad bank" to absorb some of the businesses it no longer wants to be involved in, including commodities, as it shrinks its investment-banking activities.
McGee’s 8.87 million-pound ($14.9 million) stock bonus, disclosed in March, was the highest for any executive at Barclays. Jenkins earned less than half as much, with shares valued at 3.82 million pounds.
Events since 2009 have taught us that when investment banks get too frisky and their adventures end in disaster, taxpayers -- me and you -- end up on the hook. And while it would be both nonsensical and economically undesirable for them to stop servicing their corporate clients, a period of reflection to assess the changed regulatory environment as policy makers wrestle with the too-big-to-fail issue is undoubtedly a good thing.
Alison Williams, an analyst at Bloomberg Industries, notes that Deutsche Bank cut its investment bank front office staff -- the folk who buy and sell stuff in markets -- by 2 percent in the first three months of this year, even as total staff for the unit grew 1 percent from the fourth quarter.
Instead, Germany's biggest bank is increasing head count in compliance and related functions, and adding "several hundred" supervisory staff including about 150 in its investment bank, Williams said in a report. Her figures also show Credit Suisse trimmed its traders by 2.5 percent, adding to cuts of 1.5 percent by the end of last year, with Goldman Sachs and JPMorgan also shedding staff.
That said, investment banking still seems to be an attractive career destination. The Judge Business School at the University of Cambridge says 20 percent of its 2012-2013 Master of Finance graduating class ended up in investment banking, topping 12 percent who went into asset management, commercial banking or non-finance, and 10 percent who found jobs in venture capital, public-sector finance or corporate finance.
As regulators constrain so-called proprietary trading, where banks gamble with their own money, and demand higher capital standards, some areas of finance are shrinking. Consider the world's biggest market, foreign exchange. Currency trading declined to $4.87 trillion in December compared with $5.7 trillion in June, according to data from CLS Bank, which operates the world’s largest foreign-exchange settlement system.
Deutsche Bank’s Currency Volatility Index, which measures market expectations for future price swings among nine currency pairs, slumped to a 6.51 percent yesterday, its lowest level since 2007 and a drop of more than 40 percent since mid-2013.
As currencies become more stable, companies should need less help from their bankers to defend against swings by buying complicated derivatives. That should leave bankers with more time to devote to the boring work of acting as intermediaries between the providers of capital and those who can usefully invest it.
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