Barclays fixed income traders are getting bigger bonuses at just the wrong time

Barclays has reported its Q3 results and if you work in fixed income sales and trading there, it's looking painful. 

Revenues in Barclays' fixed income currencies and commodities (FICC) business were down 19% year-on-year in the third quarter, making it the worse performing bank to report so far. Worse, even, than Bank of America, whose share price fell 6% in September when CEO Brian Moynihan flagged the faltering of FICC.

Barclays' CEO, C.S. Venkatakrishnan, said today that European rates traders did particularly badly in the third quarter and that securitisation professionals performed better. It was "disappointing," he added. The decline may explain why Barclays' rates traders like Hamza Hoummady have been leaving. (Bloomberg reported yesterday that Hoummady is going to Qube). 

The bad time for Barclays fixed income traders comes as the bank is planning to pivot pay away from higher salaries and in favour of performance-related bonuses. Like other non-EU banks, Barclays is now liberated from the European Union's bonus cap, which restricted bonuses to twice salaries. Barclays is now allowing itself to pay bonuses that are up to ten times salaries but is not planning to increase overall pay, implying a salary reduction sometime soon. That's good news if you've performed and bonuses are rising. Bad news if you haven't and they're not. 

As it moves to a new pay model where bonuses account for a higher proportion of the total, Barclays is predictably spending more on bonuses. The bank said today that "performance costs" are up in the investment bank year-to-date. Barclays has also booked £55m of additional expenses in the investment bank as part of its programme to move senior bankers to proportionately higher bonuses and proportionately lower salaries. In July, it revealed that first half spending on "performance costs" (bonuses) was up 30%. 

Who will get these higher bonuses? Based upon Q3 performance alone, people working in equities sales and trading look like strong candidates. Barclays’ equities sales and trading revenues rose 47% year-on-year in the third quarter, driven by “prior investment in Prime Financing and Equity Derivatives”. In the first nine months of the year, they were up 74% on the same period of 2023. By comparison, Barclays' FICC revenues fell 19% in the third quarter and were up a feeble 2% over nine months compared with 2023.

Away from equities sales and trading, Barclays' ECM bankers and M&A bankers haven't done badly. But as the charts below show, they also haven't done well. Barclays has another £300m of restructuring spending coming in the fourth quarter. 

Bloomberg notes that the bank is planning to make 5,000 job cuts as AI generates "efficiency". These people will not be there to receive bonuses anyway. 60% of the cuts are coming from the middle and back office, but that leaves another 2,000 cuts coming from elsewhere.

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