Do we really mean to kill investment banking, or are we trampling it by accident in a fit of righteous zeal? By ‘we’ I mean politicians, regulators and public opinion, and by ‘kill’ I mean rendering it unattractive or unviable for any shareholder-owned financial business except on the most limited scale — and as uncertain a career choice as, say, Liberal Democrat politics or freelance journalism.
The announcement last week of a radical scaling back of Barclays’ trading and deal-making arm has stoked a debate that had been smouldering for some time; for background reading, I recommend recent articles by Philip Augar in the FT and Frances Coppola in Forbes. In essence, the British and European presence in the investment banking arena is shrivelling fast, the titans of Wall Street are feeling the chill, and the future lies with partnership-owned boutique providers of specialist skills, meeting the needs of savvier clients. In the long term, this evolution should be good for stability and productive use of capital; it’s more or less what this column has been advocating over the past several years; but it’s an accelerating shift for London as a global financial centre, and we had better grasp what it means.
Bob Diamond’s Barclays Capital, particularly after its purchase of the rump of Lehman in 2008, was the last British-owned world-scale competitor in this field. New-broom chief executive Antony Jenkins is now following the path of RBS’s Ross McEwan, who announced in February that his bank would henceforth engage only in investment banking activities essential to a full-service offering for corporate customers. The proposed ‘ringfencing’ of the so-called casino from the utility function of retail banking, when it comes along, may barely seem useful any more.
As to the rest of Europe, only Deutsche Bank (which absorbed Morgan Grenfell in the sector’s last upheaval 20 years ago) still looks like a committed player, followed by Credit Suisse — though the latter may be about to sustain huge fines for allegedly helping its clients avoid US taxes.
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