In June 2009, top Barclays PLC executive Robert Diamond laid out an ambitious plan for the venerable British bank "to be the premier global investment bank," a goal he hoped to achieve "over the next couple of years."
More than three years after Barclays absorbed Lehman Brothers' North American operations in a cut-price deal that represented a critical moment of the financial crisis, Barclays has yet to achieve the lofty goals set out by Mr. Diamond, now the bank's chief executive.
Despite making progress, the investment-banking division, called Barclays Capital, is making less money than executives predicted. In Europe, which Barclays targeted as a key growth area, it has struggled to win investment-banking assignments in the crucial areas of equities and mergers and acquisitions. It has fallen short of a goal to become a top-three player in those categories.
Some analysts and investors are grumbling. "There is impatience in the market," said Robert Law, a banking analyst with Nomura Securities. "Investors are pretty skeptical" about the bank's ability to achieve its goals. Analysts say the concerns are weighing on Barclays's shares.
The investment bankers who today run Barclays say they are on track to achieve their ambitions in businesses like European equities and mergers advice, but it will take longer than initially expected due to unfavorable market conditions.
"We've outperformed our competitors, but there are still things we can improve and challenges to meet," said Jerry Donini, Barclays's global head of equities. "As our competitors retrench, this creates additional opportunities for us to continue to take market share."
Barclays reports its 2011 results Friday. Its U.S. peers limped through a lackluster second half of the year, and Barclays is expected to post similarly weak investment-banking results.
As markets boomed temporarily in the first half of 2009, pumping money into Barclays's coffers, Mr. Diamond misjudged the upswing, telling investors he thought the revenue surge was a sustainable trend. He proceeded to pump what executives and analysts estimate as hundreds of millions of dollars into an aggressive global growth plan.
A Barclays official said other banks made similar misjudgments about the sustainability of revenues, and that a subsequent drop stemmed from unexpected regulations and competition.
Today, those challenges, coupled with unfavorable financial conditions, are weighing on investment-banking profits across the sector.
Barclays's $1.75 billion acquisition of Lehman's North American operations out of bankruptcy protection in late 2008 immediately catapulted it into the upper echelons of American investment banking. Barclays already boasted a strong fixed-income business, garnering top rankings in areas like European debt underwriting.
But Mr. Diamond's team decided to build, essentially from scratch, European and Asian platforms for stock sales, trading and research, and for advising companies on mergers and underwriting their stock issuance. The goal was to achieve elite status in those areas by 2012.
"Establishing a top-tier European equity and M&A business is a logical extension of bringing together world-class capabilities in the U.S. with a very strong set of client relationships in Europe," said Jerry del Missier, today a co-CEO of Barclays Capital, at a June 2009 meeting to present the vision for Barclays Capital. A slide projected on a screen behind him said: "Target top 3 position over the next 3 years."
Yet in 2011, Barclays ranked seventh in European M&A advisory work, up from 11th.
In the first half of 2009, Barclays Capital raked in more than £5 billion ($7.95 billion) in revenue in each of the first two quarters. "I do believe they're sustainable," Mr. Diamond said in August 2009 when asked if the blockbuster results would continue.
The investment bank embarked on a spending spree. In 2009, it hired about 2,000 people to build out the equities and advisory businesses in Europe and Asia.
Executives assured investors the heavy spending would pay quick dividends.
"Frankly, we expect that by 2010 the build will be complete and that we'll be well on our way to monetizing the investment," Mr. del Missier said in June 2009.
Instead of remaining at the early 2009 level, investment-banking revenues have fallen off a cliff.
While Barclays no longer reports comparable data, its revenue appears to be down more than 40% from the boom, according to analysts and Barclays officials.
Barclays executives say today that they expected a long, hard slog all along.
The executives say the bank's patient effort to build a sustainable franchise in Europe has borne fruit. Since the beginning of 2010 for example, Barclays has won 26 corporate-broking mandates, including from major clients such as BHP Billiton. Corporate brokers serve as liaisons between U.K. companies and their shareholders.
But some investors have been losing patience. "Can you give us some idea of the time scale that you expect this to pay off?" Mr. Law, the Nomura analyst, asked Mr. Diamond on a conference call in August 2010.
"I think what...I would say is, 'Relax'," Mr. Diamond said.
Nonetheless, soon thereafter, Mr. Diamond quietly sought to ratchet down the boasts.
Meanwhile, of the top 20 European equity deals since the beginning of 2010, Barclays has been a "bookrunner"—or one of the lead underwriters— on just four, according to Dealogic. Barclays was also absent from the list of advisers on the merger announced this week between Xstrata PLC and Glencore International AG. The deal will create a mining juggernaut with a combined market capitalization of $90 billion. Barclays did get added as an adviser after the transaction was announced, indicating it played at best a minor role.
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