A visible shift from bonds to stocks
Barclays is tilting its mix toward stocks and away from a bond-heavy identity. On the earnings call, CEO CS Venkatakrishnan said, "We are rebalancing towards equities." That reweighting showed up in the latest numbers: in the third quarter, equities revenue matched fixed income, a milestone Barclays hadn't reached at any time since its 2008 acquisition of Lehman Brothers' North American investment bank.
Venkatakrishnan has called Barclays "the house that fixed income built." After that 2008 deal, FICC - fixed income, currencies and commodities - generated almost £13 billion in 2009, while equities and prime services brought in £2.8 billion. The investment bank has since streamlined, and fixed income has still accounted for the majority of markets revenue, even as equities caught up in the latest quarter.
Prime brokerage and volatile chips drove the move
The engine behind equities has been prime brokerage, which finances and services hedge funds. Barclays has been expanding prime since Venkatakrishnan became CEO in 2021, and in 2022 he said the business "has been rewarding to us" with balances that have "increased tremendously." Bloomberg has reported the bank shifted capital from macro trading to prime in recent months after hitting certain capacity limits to fund hedge funds.
That capacity was in demand as hedge funds sought more financing to ride - and survive - the sharp rallies and selloffs in Asian semiconductor names. Shore Capital's Gary Greenwood noted that "growth in equities was very strong" versus fixed income in the quarter, while adding the outperformance was a sector-wide pattern, so market share gains are unclear. Prime balances have also climbed across Wall Street in recent years, including at JPMorgan and Goldman Sachs.
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What happened on the fixed income side
Fixed income revenue fell across Wall Street desks in the quarter as higher interest rates - including an additional hike from the US Federal Reserve - damped client activity. At Barclays, CFO Anna Cross said the equities performance helped offset "lower client activity in rates and credit" late in the quarter and "further adversity in September," as fixed income revenue was 19% lower than a year earlier.
Europe's government bond markets have been tough terrain too. Traders were repeatedly wrong-footed by abrupt moves, and yields reached multidecade highs as the conflict in the Middle East persisted and investors factored fiscal and inflation risks into prices.
The bigger picture and what it means for your portfolio
Barclays' jump in equities revenue in the third quarter topped the 43% average across US peers, according to JPMorgan analysts led by Kian Abouhossein. If equities income keeps building, Barclays would sit among Europe's heavyweight trading shops alongside BNP Paribas and UBS, both of which have logged sizable gains in equities revenue in recent quarters. By contrast, Deutsche Bank lacks an equities business and leans on fixed income.
Barclays reported before a wave of European peers, and investors will be watching whether fixed income softness lingers and if equities can keep carrying more weight. The bottom line: Barclays is deliberately building a bigger equities and prime brokerage platform while bond trading eases, which could change how its results track different market swings.
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