What's going on?
According to reports on Wednesday, British investment bank Barclays is in talks to launch a mega-merger with rival Standard Chartered. But according to some, it may just be a clever ploy from Barclays’ management to calm a disgruntled shareholder.
What does this mean?
The proposed tie-up reflects a bit of a tussle at Barclays about what the bank’s future should hold. While its CEO believes that a push back into investment banking (i.e. more trading of stocks and bonds) is best for the ailing bank, not all of the company’s shareholders necessarily agree.
That includes one of Barclays’ biggest shareholders. He wants to use his clout to see Barclays slim down its investment banking operations, as they’re often costly to manage and somewhat less dependable than traditional consumer lending. By floating the idea of a merger, Barclays’ management might be working to convince investors that it’s still possible for the bank to focus on investments while boosting profits another way (i.e. through a merger).
Why should I care?
For markets: Market volatility helps make a case for investment banking.
Barclays’ current management may not be wrong for thinking that investment banking might be set for a rebound in the near future. Market volatility is back on the menu this year, and banks with large trading divisions often rake in the dough by taking advantage of buying and selling financial assets when their valuations swing rapidly.
The bigger picture: It’s looking better for US banks (sorry, Europe).
While some US banks are beginning to bring home the bacon from their investment banking divisions, that’s not exactly the case for their European counterparts. Take ailing Deutsche Bank, which used to rely on trading in exotic financial instruments as a cash cow: it’s now hemmed in by tougher regulation and can’t seem to get that side of the business to grow like it used to. Deutsche’s CEO recently stepped aside and the firm is now cutting 10,000 jobs, mostly in its investments division.