Barclays Investment Bank is proving its worth as bad debts spiral

Barclays investors may reflect that Jes Staley’s business judgement is a good deal sounder than his personal judgement.

The scandal over his relationship with disgraced financier Jeffrey Epstein – the second big blot on the landscape during his time as CEO – continues to cast a long shadow.

Against that backdrop, his dogged defence of Barclays Investment Bank could serve as the core of the case for the defence when the history of his tenure at the top of the institution is written.

On the back of the latest results, he would almost be justified in brandishing a paper copy of them in one hand while raising his middle finger in the direction of nemesis Ed Bramson, the bank’s biggest shareholder who wants shot of it and him, with the other. From a safe distance, obviously.

The bank booked a sharp rise in provisions for bad debts during the first quarter of the year – they increased by a factor of five to £2.1bn – while net profits fell by 42 per cent. Well below forecasts, but given the performance of peers, this didn’t come as a great surprise.

The investment bank surely cushioned the blow. With the markets in turmoil, Barclays trading activities were a particular high point, serving to give the bank a much needed shot in the arm. The Markets division recorded a 77 per cent spike in revenues, its best quarterly performance since 2014.

Pre-tax profits at the investment bank as a whole rose 42 per cent. The current quarter is looking good too. The bank reported the trading “revenue run-rate” to be well above that of the second quarter of 2019.

When Staley came in he set out his vision of Barclays as a transatlantic “universal” bank. The idea was that when one part entered choppy waters, the others would be there to pick up the slack. He’s stuck to his guns at a time when most of the other big European players have been in retreat from investment banking, leaving Barclays ploughing an increasingly lonely furrow.

Doing so, however, is proving worthwhile. If investors needed their spines stiffening with a view to resisting Bramson’s blandishments, these results should do the trick.

This has implications beyond Barclays shareholders not named Bramson.

Investment bankers are not popular and with good reason. It’s an industry that attracts people who seem prepared to leave morality at the door. The scandals it has thrown up have been quite disgusting, the remuneration practices tasteless, the ethos deeply flawed.

But amid the brutal economic fallout from the coronavirus crisis, they could prove to be a bit like a dentist brandishing a drill when you’ve got a toothache: painful but necessary.

With large numbers of corporates in need of help, financially and structurally, their services are going to be in demand, and not just for trading.

Recent reports have suggested American banks, under pressure to shore up the home front, have turned cautious on Europe. It’s something that will merit watching.

Fortunately, there are other lenders, with strong balance sheets and the capacity to use them, capable of picking up the slack.

Having an investment bank with roots in the ground here could also prove to be invaluable.

It’s certainly proving worthwhile for the bank’s shareholders, who might be advised to have a word in the shell like of chair Nigel Higgins, who is in the midst of seeking Staley’s replacement, with a view to keeping the investment bank intact.