arclays posted robust first-half results last Thursday, earning nearly $8.1 billion, up 12% from last year's first half, and citing its investment banking division as one of the drivers. Grant Kvalheim, co-president of Barclays Capital and head of investment banking, spoke with IDD about those results, and more.
You had record results for the first half of 2007. Could you talk about the bank's strengths?
Barclays Capital profit before tax increased 33% in the first half on the back of two consecutive record quarters. As we said, it's diversified both in terms of regional contributions and to the extent our client franchise in the U.S. and in Asia and also our product growth across areas we have been investing in: commodities, structured credit, commercial mortgages are all doing quite well in the first half.
What's your business outlook for the rest of the year?
Obviously, in July, the markets have become far more volatile in structured and subprime; however, that has affected our business in positive ways in other areas, like government bonds, and foreign exchange. An important point we made in our release today was that notwithstanding the volatile environment in July, our earnings in July 2007 at Barclays Capital were above our earnings in July of 2006.
Barclays has said that its new offer of $93.3 billion for ABN Amro stands to "materially advance our likelihood of succeeding" in buying the bank, but ABN just dropped its support for a takeover by Barclays. What does that mean for the bid?
We are confident the restructured offer is attractive. China Development Bank and Temasek are core strategic investors in Barclays, and whether or not ABN happens...we think that will have a profound effect on our business in Asia going forward, to have the backing of China and Singapore. But you know, our view about the neutral stance of ABN is really more a function of the volatility of the equity market and weakness in particular in the financial sector to which Barclays was not immune. ABN thought there was enough of a gap on current share prices that they went to a neutral stance. Our view is that we will see how things will play out, we remain confident. The visions of the two proposals are quite different. One is creating one of the top five global financial institutions and growing it, versus breaking it up and selling off its parts, and frankly, if what ABN wanted to do was break itself up, it does not need RBS to do that for it.
What's your take on the pressure some hedge funds are putting on the bank, demanding that Barclays retract its offer for ABN?
We think China Development Bank and Temasek committing 3.6 billion to Barclays is a far more powerful statement about our strategy than some activist hedge funds.
Barclays is still boosting its MBS/ABS research team with new hires, so does it mean you are more optimistic than most?
I don't think that I would correlate new hires directly to optimism about the market at a particular point in the year. Our hiring plans are not adjusted minute to minute to temporary shifts in the marketplace. Those are areas where at the beginning of the year we had a need for more people. I think I would disconnect hiring and fundamental views of the marketplace at a particular point in time .
You joined Barclays in May 2001? What have you accomplished and what do you still hope to accomplish?
I don't think it's my accomplishments. I think it's the firm's accomplishments, and I've been pleased to be a part of that. If you look where our firm was in the U.S. in 2001 and where it is today, there is no comparison. It would be unfair to say we had no revenues, but last year in the U.S. we had $3 billion in revenues. The growth rates in between were quite substantial in the U.S., and we now have a much broader, deeper product offering and a much broader, deeper set of clients that we think continue to offer us a significant growth opportunity. That's part of our plan at Barclays Capital, to grow in the U.S., and we're growing in the world as a whole. We have a position in the U.K. that's enviable and keeps growing as well, but given our size and position in that market, our growth will come more strongly from the U.S. and Asia.
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