The bank’s profits quadrupled in the first half of 2021, shooting the lights out on forecasts and sending shares 5% higher on Wednesday.
Barclays was boosted by a record second quarter performance at its investment bank, thanks to an M&A and IPO boom, and a record performance in its equities business. Strength in these divisions helped offset weakness in Barclays’ consumer credit business and fixed income trading.
Today’s results are another demonstration of why Staley was right and his former bête noire Edward Bramson was wrong. Bramson led a long activist campaign against Staley and Barclays through his firm Sherborne Investors, urging Barclays to ditch its "underperforming" investment bank and focus on what it was good at: UK retail and corporate banking.
Staley, an investment banker by trade, always argued that diversification was the right strategy. If one part of the bank was struggling, another might do well and help keep earnings on an even keel. So it has proved today.
Bramson’s argument never gained much traction with investors and he gave up in May, shortly after Barclays reported its highest quarterly profits in a decade. As with today's results, that performance was driven by surging investment banking revenues which offset consumer weakness.
Any future investor eyeing a change at Barclays would do well to remember this moment. Bramson was not the first to suggest Barclays should leave investment banking to the Americans and he will likely not be the last. In more normal times, activists can easily pick the investment bank out as a weak spot. It is costly to maintain and struggles to break the stranglehold of US banking giants like Morgan Stanley (MS), Goldman Sachs (GS), and JPMorgan (JPM).
But the last two years have shown the benefits of Staley's approach. Stable waters can't always be guaranteed and when Black Swan events arrive, diversification pays dividends – dividends that Barclays investors will now be enjoying.
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