Barclays is spending an extra £200m bonuses. Its macro traders may not be the beneficiaries

It's only July, but it looks like a good year for Barclays bonuses. Barclays' first half results, released today, show the overall bonus pool in the bank rising 30% to £1.3bn in the first half. In the investment bank specifically, Barclays accrued £200m of additional compensation in the second quarter alone.

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Barclays' investment bank has had a good first half of the year. Profits were up 11%. M&A revenues were up 67%. Equity capital markets revenues were up 65%. 

Only Barclays' debt-related businesses weren't so great, with fixed income sales and trading revenues flatlining at 1% growth and debt capital markets revenues up 2%. Both were considerably worse than the rest of the market. The bank gave no explanation for this beyond a comment that in fixed income trading it, "continued to provide support to clients through a range of environments." 

Poor performance in Barclays' historically strong fixed income business means the bank's usually diminutive equities sales and trading business was nearly the same size as fixed income in the second quarter, measured in terms of revenues. Six years ago, equities trading revenues were half fixed income trading revenues at Barclays.

What changed? An excellent quarter for equities across the market. Barclays said the 30% increase in its equities business reflected, "growth in prime financing balances, and equity derivatives." The latter was despite a cluster of departures from its equity derivatives business. 

The fixed income business, though, looks woeful. It's not for want of risk. As the chart below shows, value at risk (VaR) actually rose year-on-year at Barclays for many traded products (rates excepted) in the first half.

Source: Barclays

What then? Capital allocation might be a factor. Barclays doesn't disclose how it allocates capital within its trading business, but as Bloomberg's profile of Adeel Khan, who runs the markets business, made clear yesterday, capital allocation is a focus at Barclays. In today's presentation, the bank said "disciplined capital allocation" has been driving "greater RWA [risk weighted asset] productivity in the investment bank."

The issues in Barclays' fixed income trading business might also be the result of its structure. As the chart below, dating back to 2022, but included in a recent report from Morgan Stanley's European banking analysts shows, Barclays' fixed income currencies and commodities business was historically unusually reliant on rates trading. 

Barclays' rates business has lost a lot of people in the past year and although it's hired some new ones, they may take a while to settle. The bank has aspirations to grow in securitized products. But Barclays isn't a big player in commodities and this is likely to have impacted revenue growth relative to rivals with commodities operations in the volatile first half.

Other banks' rates businesses also had a poor Q2. Citi, for example, said its rates revenues fell. 

Barclays might be ok with its fixed income business faltering. The bank is on a mission to generate "stable income streams" from businesses like M&A, and it appears to be succeeding in this. For the moment, people like ex-Goldman Sachs partner Ronnie Wexler and ex-Morgan Stanley MD Scott McDavid, who have run equities since 2023, are in line for the biggest increase in bonuses, along with Cathal Deasy, the once only partially comprehensible head of M&A. 

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