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Morning Coffee: This cannot be good for Barclays. 28-year-old Goldman analyst may have been foolish

2024 is increasingly showing signs of being challenging for Barclays. As employees and investors await the new strategy unveil on February 20th, major investors are showing signs of restlessness. 

The Financial Times reports that the Qatar Investment Authority, which owns 5.3% of Barclays by virtue of its controversial investment of £4bn in June and October 2008, is selling £510m of its current stake and reducing it by 45% in the process. 

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It's not the first time the QIA has cut its holding of Barclays: it did the same in November 2009. However, as Adam Terelak, an analyst at Mediabanca points out to Bloomberg, selling now isn't exactly a ringing endorsement of the coming strategy update. 

As we noted last week, that update is expected to commit Barclays' investment bank to generating 14%-15% returns over the cycle, even though it's only achieved this once in the past six years - during the heyday of 2021. For the moment, Barclays is planning to attempt this without cutting jobs (at least not in the front office) or dramatically reducing the capital it allocates to the investment bank. Instead, it plans to drop unprofitable clients. 

Given that the investment bank has long been framed as the reason for Barclays' enfeebled share price, the QIA's decision to get out now suggests some skepticism whether this can be achieved. Barclays' shares are down 50% since 2016 and have fallen 12% this year to trade at their lowest level since the pandemic. The QIA's sale is likely to drive them lower still: when it sold a 3.5% stake in 2009, Barclays' shares fell 20%. 

The danger is that other investors are spooked into doing the same and that Barclays' CEO, CS Venkatakrishnan, is spooked into making more dramatic strategic changes entailing more dramatic surgery to the investment bank. So far, Venkatakrishnan is saying things like, “Rebuilding [the investment bank] took time, treasure and persistence,” and is saying he has no intention to cut it back again. 

Writing in an investor note after Barclays' results in late October, JPMorgan analyst Raul Sinha said Barclays' earnings per share are likely to be below consensus through to 2025 as the bank struggles against a falling net interest margin due to pressure on deposits at its retail bank, coupled with waning momentum in its investment bank. Barclays M&A bankers and macro traders had a difficult third quarter. It doesn't augur well for jobs or bonuses, although it could have been worse - the QIA isn't selling its stake in its entirety.

Separately, former Goldman Sachs analyst Mohammed Zina appears to have been around 28 when he got his job in Goldman's conflict resolution group in 2016. He's now closer to 35 and the mistakes he allegedly made then are haunting him.

Zina and his brother, a lawyer, are in court for alleged insider trading. Having become party to confidential information at Goldman, prosecuters say Zina took out loans from Tesco Bank to invest in shares before the information was disclosed. In doing so, they're said to have made £140k.

Unfortunately for Zina and his relatives, the FCA spotted the alleged goings-on and gained access to WhatsApp messages in which Zina is said to have expressed impatience because trades had to happen before his information became public. In 2016, the prosecutor says he also spent some time reading a New York Times article about two brothers engaged in insider trading, and that he did so because it had "resonance" with his own situation. Zina could be imprisoned for seven years or more. Be warned.

Meanwhile...

The top AI people in hedge funds are: Bryan Kelly at AQR, Charlie Flanagan at Balyasny, Jasjeet Sekhon and Greg Jensen at Bridgewater, Shen Xu at ExodusPoint, Tim Mace at Man Group, Mike Purewal and Gideon Mann at Millennium, Sridhar Nimmagadda at Point72, Mike Schuster at Two Sigma, Li Deng at Vatic. (Business Insider) 

Citadel selected less than 0.3% of applicants for its latest internship program in Sydney. (Bloomberg)

Jefferies is starting an investment banking business in Canada. (Bloomberg) 

Banks need to start monitoring what staff post on LinkedIn. “LinkedIn appears to be a likely next focus." (Bloomberg) 

The trouble with investment banks now: “The cuts have still largely been around the edges, and the lack of departures and continued investment in senior bankers has meant we’re stuck with headcount at 2020 levels." (Financial News) 

UBS is planning some heavy investment in its US wealth management business. (Financial News) 

Difficult times for the Goldman Sachs bonus pool. “They know they f–-ked up compensation a year ago and so they promised people if they stayed they’d pay them. But the cold, hard reality is when you look at the revenue pool, you don’t have enough money to make the numbers work.” (NY Post)  

AI is being used to expedite the careers of juniors in the Big Four. At KPMG graduates are now doing tax work that was previously reserved for staff with at least three years of experience. At PWC, junior bankers are spending more time pitching clients. (Bloomberg) 

How to create an AI model that can win a math Olympiad and win $10m. “You do not need any university knowledge of mathematics: no integrals, no differential equations, no matrices. What you need are very clever ideas, abstract thinking, rigorous reasoning, sometimes also out-of-the-box ideas and in the end a clear presentation of the solution.” (WSJ) 

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AUTHORSarah Butcher Global Editor

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