In quiet times, Barclays bets on investment banking in Brexit UK

Barclays Plc is taking a contrarian bet that Britain's vote to leave the European Union will help it win more investment banking business in its home market, despite the sharp slowdown in deal activity since the referendum.

The British lender has reshuffled some of its top investment bankers so they can focus on the UK, anticipating that the weak pound and a quiet 2016 will lead to a rise in dealmaking and share listings next year even as the country faces its biggest political and economic shake-up since the Second World War.

At the heart of the strategy is a plan to win more advisory business from British companies the bank already lends to, with Alisdair Gayne leading the charge as head of UK investment banking.

Gayne joined Barclays from Morgan Stanley in 2010, tasked with building out its corporate broking franchise, a role he will retain. Largely a UK phenomenon, corporate brokers act as intermediaries between public companies and their institutional investors. They are meant to be a corporation's trusted adviser, built up over years of being its eyes and ears in the market.

Although it's not a particularly lucrative business on its own, the relationships built in corporate broking can be used to clinch big ticket jobs from the company when they decide to pull the trigger on equity raisings and dealmaking.

Since joining Barclays, Gayne has been challenging the grip of the top three brokers in the UK -- JPMorgan, Bank of America Merrill Lynch and UBS -- on the largest British companies. Barclays is now ranked number 5.

So far in 2016, the bank has won 8 new corporate broking mandates, including tobacco maker Imperial brands and chip designer ARM, which is being taken over by Japan's SoftBank, a deal the UK bank also won a mandate as adviser on.

Gayne is now being tasked with using corporate banking relationships as well as broking relationships to win more investment banking mandates.

BIG OPPORTUNITY

"In the UK we're not taking full advantage of the big opportunity offered by the strength of our corporate bank," John Mahon, Barclays head of corporate and investment banking for Europe, Middle East, Africa and Asia, told Reuters last week.

"Those firms ahead of us in UK investment banking aren't involved to the same extent in corporate banking," he said in an interview. "The coordination between corporate and investment banking needs to improve."

Barclays ranks a lowly ninth so far this year in advisory for announced UK target takeovers and eighth for equity capital market business, in value terms, trailing heavyweight U.S. investment banks as well as boutique advisory firms.

The new drive is part of the "Transatlantic" strategy announced by Chief Executive Jes Staley in March to focus Barclays work on Britain and the United States. In the third quarter, 54 percent of the bank's overall revenues came from its UK business and 31 percent from the Americas.

The value of mergers and acquisition deals between UK companies has plunged 67 percent to a 30-year low since the Brexit vote in June, according to Thomson Reuters data.

Overall, UK investment banking fees earned in the UK are down 14 percent so far this year to total $4.1 billion or 5.5 percent of global investment banking fees and 22.8 percent of the Europe, Middle East and Africa (EMEA) fee pool.

Back in 2000, UK investment banking fees represented 9 percent of the global fee pool and 26 percent for EMEA, according to Thomson Reuters data.

Gayne sees that turning around next year.

"There are a lot of situations where we see companies preparing for next year ... we see significant upside in UK M&A and equity deals," Gayne told Reuters.

That presented a growth opportunity, Mahon said.

"Against a backdrop of EMEA deal volumes being down this year we expect people to withdraw from the market, while we'll expand and upgrade," said Mahon.

"Maybe the market is quiet for a while, but I kind of like that ... It means it's not a bad time to invest."

FINDING A NICHE

Barclays ranks number three in Britain in terms of investment banking fees earned year-to-date, netting $230 million worth of fees or a 5.59 percent wallet share. This is up from a ranking of eight in 2008, the year it bought the Lehman Brothers investment banking franchise.

"Barclays is holding its own in the league tables, not slipping the way Deutsche Bank is in Europe and the U.S.," said David Hendler, independent analyst at New York-based Viola Risk Advisors.

The plan to squeeze more corporate finance deals from existing customers mirrors the successful strategy of U.S. rivals like JPMorgan and Citigroup .

It also reflects a broader trend for investment banks to become more specialized, as tougher regulations since the 2008 financial crisis make trying to be in every market increasingly difficult.

Barclays has named former Europe and Asia investment banking co-heads Sam Dean and Crispin Osborne to the roles of head and chairman of corporate finance for EMEA, respectively.

They said the split takes away broader managerial responsibilities and narrows their roles, allowing them to focus on key targets and client relationships while Gayne concentrates on the UK market.

"Jes has come in and said 'where's the upside? Where's the focus?'," Dean told Reuters.

"UK banks will be the most nimble around Brexit...We have said when things are clearer we are committed to quickly making this work for our clients."

Barclays on Oct. 27 reported a forecast-beating bounce in third-quarter profits to 1.7 billion pounds, in what Staley hailed as early vindication of his 'countercyclical' bet. [nL8N1CX1VR]

The bank has been making cuts elsewhere to bolster its strategy, selling billions of dollars worth of assets to make sure it only has profitable business lines.

(Editing by Sonya Hepinstall)