The rise and rise of BarCap has been well documented. On Tuesday, a 55 per cent jump in pre-tax profits for 2006 helped offset continuing difficulties with bad debts and in the retail bank at Barclays.
But the rapid growth at the previously debt-focused bank is coming in areas beyond its traditional focus. In some, such as commodities, Barclays’ investment bank is reaching a bulk that compares with the biggest in the business.
And that growth doesn’t come without risks.
“Growth was particularly strong in areas where we have invested in recent years, including commodities, equity products and credit derivatives,” reads the Barclays statement on Tuesday. “Profit growth was accompanied by improvements in productivity: income and profits grew significantly faster than Daily Value at Risk.”
It is those daily VaR figures that rivals in the trading business like to home in on. Barclays’ filings indicated that its average daily VaR — a measure, calculated at a given probability, of what Barclays could lose across its market exposure on a daily basis under ‘normal’ market conditions — jumped £37.1m last year, up from £31.9m a year earlier
Importantly, in commodities trading, average VaR rose from £6.8m to £11.3m and within that there is evidence that BarCap is taking far larger positions: the maximum VaR in any one trading session rose from £11.4m in 2005, to £13.9m in the first half of 2006, and then leapt to £21.6m over 2006 as a whole.
What does it all mean? Well, for starters it means that BarCap can now count itself among the big boys in the commodities game.
According to the most recent figures, commodity VaR stands at $29m at Goldman Sachs, $30m at Morgan Stanley and $35m at JP Morgan. Moreover, those three Wall Street firms have pulled back their exposure to commodities slightly over the past year, while BarCap has expanded aggressively.
What it also means is that we have yet to see any real sign that the biggest investment banks are becoming more risk averse across the trading spectrum.
Some market watchers monitor VaR figures very closely. They see these stats as the “canary in the coal mine” — offering the first evidence that banks are pulling back in one or more areas.
And, if BarCap is any guide, that canary is decidedly yellow, upright and singing away.