In a Rarity These Days, Barclays Moves to Expand

Julia Werdigier|The New York Times

Robert E. Diamond Jr., president of Barclays, just moved his New York office to the former Lehman headquarters on Seventh Avenue, across town from the old Barclays Capital building.

Barclay's Bank

He is elated, he says, by the size of the investment banking business the company has acquired in America.

In what may be a rarity in the world of high finance, Barclays is in the middle of a wide-ranging expansion plan.

In the last three months, Mr. Diamond and five other executives at Barclays Capital, the investment banking unit, have gone on a hiring spree, adding more than 450 research, equities and merger advisory professionals in Europe and Asia from rivals like Goldman Sachs and Morgan Stanley . They plan to hire more than 300 before the end of the year.

In Europe, Mr. Diamond declined to buy Lehman’s European and Asian operations, seeing too much overlap and a lack of clout. Instead, he wants to build those businesses himself.

“Our mission is to become one of the premier investment banks of the world,” Mr. Diamond said. “We’re not trying to catch the market. This is a long-term investment.”

After turning Barclays Capital into one of the biggest risk management and financing firms in Europe, Mr. Diamond says he now has a unique opportunity to benefit from a decimated market and expand into equities and merger advice to compete with rivals like Morgan Stanley and Credit Suisse, two of his former employers.

Many investors have cheered the initiative, as demonstrated by the stock’s strong performance. Barclays shares in London have risen 91 percent this year, while British rivals like HSBC and Royal Bank of Scotland have fallen.

Despite the huge pullback created by the financial crisis, investment banking remains a lucrative sector for banks, bringing in high-profit, high-margin business. Although the market for initial public offerings of stock is stagnant right now, companies are still looking for advice on debt offerings, deals and mergers.

Unlike many other banks, Barclays has avoided tapping government aid in the wake of the crisis, despite recording £5 billion in write-downs last year.

But some investors worry that it did not mark down the value of assets aggressively enough, and concerns about potential losses from its loan book continue to haunt it. To raise capital, Barclays is selling its iShares exchange-traded funds business and studying a sale of BGI, the asset management business and one of its crown jewels.

Irfan Younus, an analyst at NCB Stockbrokers, welcomed Mr. Diamond’s push into equities but said he was concerned about Barclays’ “immediate problem.”

“Will the new investment banking franchise be strong enough to offset the potential future losses from their loan book?” he asked.

The investment banking business of Lehman has significantly helped Barclays’ bottom line. Barclays said in March that it had a “strong start” to the year after reporting a 49 percent increase in profit for the second half of 2008 because of gains from Lehman.

Barclays also may not have the option of sitting still. Analysts say the company needs to build a matching equity business in Europe and Asia to make the Lehman acquisition work. The financial crisis flooded the job market with bankers and traders, creating a good hiring environment.

The latest growth plan is a huge gamble at an uncertain time for the investment banking industry. And bringing in top bankers does not by itself build a successful investment banking operation. Competitors like HSBC Holdings and Bank of America had tried such expansion plans before, only to retrench later.

Christopher White, a fund manager based in London at Threadneedle Asset Management, which holds Barclays shares, cautioned that the sector was not likely to return to its boom years.

“There are risks because we don’t know how investment banking will look like in the future and how it will be regulated,” he said. “But it’s a logical expansion of their franchise and the timing is good.”

The company has a long way to go to catch up with competitors in market share. Including the Lehman business, Barclays Capital ranked seventh in equity capital markets in the United States this year but 22nd in Europe, according to Dealogic. In merger advice, the bank was sixth in the United States but 21st in Europe.

And others are also hoping to take advantage of available talent during the downturn. Société Générale is hiring 35 senior bankers in Europe and Russia to prepare for a market recovery. The merger advisory boutique Perella Weinberg Partners just hired two bankers in London.

More from the Market Mavens:

  • Big Banks OK, But Regionals in Trouble: Dick Bove
  • Art Cashin: I'm 'Worried' About Treasury Auction
  • Pros Say: Investors Headed For 'Hard Landing'

Jerry del Missier, president of Barclays Capital and based in New York, is leading the hiring for equities. Hugh E. McGee III, head of global investment banking, is in charge of building the mergers and acquisition business.

In just one month, Sam Dean, former global co-chief of equity capital markets at Deutsche Bank, will join in the same job in London; and Jim Renwick, who helped UBS build an equity capital markets business, has been hired to run corporate brokering and stock underwriting in Britain. Two former Goldman Sachs trading specialists, Howard Spooner and Damian Bunce, have also joined.

Mr. McGee and Paul Parker, a former Lehman banker who is now head of Barclays Capital’s global merger advisory business, hired Mark Warham, former chairman of investment banking for Britain at Morgan Stanley, and Matthew Ponsonby, formerly Citigroup’s global co-chief of infrastructure investment banking, as co-heads of European mergers and acquisitions. Barclays plans to hire 65 senior bankers before the end of the year.

“The opportunity to recruit people who were in positions of industry leadership has not been this strong since the tech bubble burst,” said Gerald A. Donini, Barclays Capital head of global equities based in New York. “It’s an environment where people are generally more willing to discuss opportunities.”