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- 🗞 Barclays’s £2Bn Cost-Cutting Efforts, India’s Q4 Growth Likely Slowed to 6.6%
🗞 Barclays’s £2Bn Cost-Cutting Efforts, India’s Q4 Growth Likely Slowed to 6.6%
PLUS: Coinbase’ 2024 Priority: Stablecoins, Investment Reforms for UK Pensions
Afzal Hussein
February 28, 2024
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Hey! I’ve picked a few stories that I found most interesting from Monday’s Commercial Awareness newsletter and summarised them for you below. They include:
Investment Banking: Barclays’s £2Bn Cost-Cutting Efforts
Macroeconomy: India’s Q4 Growth Likely Slowed to 6.6%
Cryptocurrency: Coinbase’ 2024 Priority: Stablecoins
Asset Management: Investment Reforms for UK Pensions
You’ll also find this week’s Career Conundrum in the green box as you scroll.
In case you missed it last week:
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INVESTMENT BANKING
Barclay’s £2Bn Cost-Cutting Efforts
Barclays' CEO Venkatakrishnan has unveiled a new strategy involving significant cost-cutting, primarily in it’s corporate and investment bank (CIB). The bank aims to cut £2bn in costs between 2024 and 2026, with £0.7bn coming from the CIB, and plans to reduce headcount in particular in the CIB, by £188m. Layoffs are expected, and bonuses are down, reflecting a weak performance by Barclays' investment bank in 2023.
Profit before tax for the investment bank fell 9% versus 2022 to £3.2bn, with costs consuming 70% of revenues and a return on tangible equity in the CIB of only 7%. Their global markets division saw revenues fall by 26% year-on-year in the final quarter of 2023, with macro trading performing poorly.
Traders in capital-intensive markets roles are most at risk of job cuts as Barclays seeks to reduce the investment bank's capital intensity. Investment bankers, particularly in equity capital markets (ECM) and advisory, are relatively safe, as Barclays aims to grow in these areas.
The bank plans to focus on growing in European rates, equity derivatives, and securitised products, aiming to earn an additional c.£500mn of income by 2026. The return on equity target for the investment bank has been reduced to a more manageable 12% from the previously suggested 14%-15%.
Overall, Barclays' new strategy reflects a proactive approach to address performance challenges and position the investment bank for long-term success.
However, the implementation of cost-cutting measures and job reductions must be carefully managed to minimise disruption and maintain employee morale.
Additionally, the success of growth initiatives will depend on the bank's ability to effectively execute its strategic plans and adapt to evolving market dynamics.
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MACROECONOMY
India’s Q4 Growth Likely Slowed to 6.6%
India's economic growth likely moderated to 6.6% year-on-year in the October to December quarter due to slower government spending and muted growth in the agriculture sector. Robust capital expenditure by the Indian government ahead of the national election in May had been driving growth in previous quarters.
India's economy grew at rates of 7.8% and 7.6% in the first two quarters of the fiscal year ending in March. Economists expect a slowdown in momentum last quarter, with forecasts ranging from 5.6% to 7.4%. Official GDP growth releases for preceding quarters have generally exceeded economists' predictions.
Slowing growth is attributed to softer agricultural production and reduced government spending, which had been front-loaded earlier in the year. Growth in farm output slowed to 1.2% in the second quarter, the weakest since fiscal 2018/19, contrasting with 12.4% growth in government spending.
Private investment is expected to perform better or remain stable relative to government capital expenditure next fiscal year, although the pace of pickup may be gradual.
Consumer price inflation is currently at 5.1% and is expected to average 5.4% and 4.6% this fiscal year and next, respectively, keeping the Reserve Bank of India's repo rate (the interest rate at which the central bank of a country lends money to commercial banks) unchanged at 6.5% until at least July.
While there are concerns about the slowdown in economic growth and challenges in certain sectors like agriculture, the expectation of stable inflation and the potential for private investment to support growth offer some optimism for India's economic outlook.
However, policymakers will need to closely monitor the situation and consider appropriate measures to support economic recovery and sustainable growth.
CAREER CONUNDRUM
Stay or Take a Chance and Leave? 🤔
Reader: Male | 27 | Frankfurt | Consulting | 6 Years Experience
Question: "I've been offered a new job opportunity at a different company, but I'm torn between staying at my current job, where I have stability and familiarity, and taking a chance on something new. How do I weigh the risks and rewards of making a career move?"
Share your advice by replying to this email and the best responses will be featured in the next issue later on this week.
CRYPTOCURRENCY
Coinbase’ 2024 Priority: Stablecoins
Coinbase reported better-than-expected financial results in its fourth-quarter earnings report.
The exchange intends to focus on its work with the USDC stablecoin and leverage its newly launched layer-2 blockchain Base for experimentation and improvement. Developed by crypto exchange Coinbase, Base is an Ethereum Layer-2 (L2) blockchain designed to make Ethereum more accessible while retaining the security of the main chain. In short, Layer 2 blockchains are scaling solutions that help carry the traffic load for their parent blockchains.
Regulatory work remains a priority for Coinbase amidst a returning bull market and institutional inflows. Total crypto market capitalisation has increased by 14% over a seven-day period to $1.96 trillion, marking the highest level since April 2022.
In the fourth quarter, Coinbase generated $529.3 million worth of transaction revenue, up 83.4% from the third quarter. Despite the positive momentum, the exchange's total trading revenue is still down 44% year-over-year.
Coinbase's revenue in Q4 2023 surged to $953.8 million, surpassing expectations and previous quarters' figures. Earnings came in at $1.04 per share, significantly exceeding expectations of $0.02 per share.
Regulatory wins, including the approval and launch of spot bitcoin ETFs, are expected to boost Coinbase's performance in Q1 2024. While Coinbase faces potential headwinds such as moderating interest rates and competition from ETF products, its positive adjusted EBITDA and return to growth territory signal a promising start to the year.
Overall, Coinbase's financial results and strategic focus underscore its resilience and potential opportunities in the cryptocurrency space.
However, regulatory compliance, market dynamics, and competition remain key factors to monitor as Coinbase navigates the evolving crypto landscape.
ASSET MANAGEMENT
Investment Reforms for UK Pensions
The U.K.'s Department for Work and Pensions (DWP) has proposed reforms for investing pension assets, including for local government pension schemes.
Proposed reforms aim to allocate more assets to U.K. private equity, generating surpluses to be shared between participants and sponsors. Smaller pension plans unlikely to secure an insurance buyout may be consolidated into a new public consolidator run by the Pension Protection Fund (PPF).
The proposed consolidator aims to maintain the security of members' benefits, provide more choice to schemes, and invest more in assets supporting the U.K. economy and gilt market. The DWP's proposals follow from the Mansion House Compact reforms announced in July, focusing on pension fund investment commitments.
Defined contribution plans are proposed to invest 5% of default funds into private U.K. companies by 2030, with a 10% target for defined benefit funds.
Concerns have been raised regarding potential risks to participant benefits, but the DWP stresses that benefits are guaranteed in statute and unaffected by Local Government Pension Scheme (LGPS) fund performance.
Collaborative efforts between the DWP, industry stakeholders, and the PPF are expected to shape the design of the proposed consolidator. With the consultation process aiming to address concerns and refine proposals to ensure the long-term security and sustainability of pension schemes in the U.K.
Overall, the proposed reforms in pension asset investment and consolidation represent a significant step towards enhancing the efficiency, security, and sustainability of pension schemes in the U.K.
While challenges and concerns exist, collaborative efforts and a focus on participant interests are crucial in shaping effective and equitable pension reforms.
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