Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

It looked like folly. Barclays Plc CEO Jes Staley would double down on investment banking while shrinking other, profitable businesses.

A year later, with animal spirits returning to financial markets and Donald Trump promising deregulation, it seems downright obvious.

Staley deserves credit for getting the bank on a surer financial footing in 2016. This year will be tough, too.

Sell The Investment Bank? Not Anymore
Barclays' trading and investment banking revenue growth surpassed the lender's peers
Source: Bernstein estimates

You can argue over the performance of Barclays's investment-banking operation relative to its U.S peers -- but the British lender's fourth-quarter results were a pleasant surprise overall. Revenue rose, expenses fell, and the bank's core capital ratio got a better-than-expected lift to 12.4 percent, a level that Staley says should put paid to worries about any capital increase.

Right Way
Barclays's results were helped by cost-cutting, while the U.S. election boosted markets
Source: Company filings

The shares extended their already impressive rally, up 90 percent since their low point after the June vote to leave the European Union.

The "Jes Men" will no doubt feel flush that eliminating 15,000 jobs and dumping unwanted assets has left the bank looking stronger rather than weaker -- no mean feat when you look at Deutsche Bank AG's travails.

A Year To Remember
Barclays CEO Jes Staley's strategy and cost cuts are showing signs of paying off
Source: Bloomberg

Barclays' investment bank grew revenue across the board, even if fixed income lagged some peers, according to estimates from Bernstein. The U.K. consumer bank was remarkably resilient, showing no Brexit scars yet.

But a lot rests on two people: Donald Trump and Mark Carney. Trump's election has lit a fire under bank stocks and promised a lift to economic growth; it's not clear yet whether the Dodd-Frank financial rule-book will be gutted or tweaked, but every little helps a bank like Barclays.

Carney's stewardship of the post-referendum U.K. economy has allowed banks to cut their funding costs and protect margins while loan losses remain low. (That also helped Lloyds, as I pointed out yesterday.)

Any disappointment or upset in either the U.S. or U.K., which account for one-third and one-half of revenue respectively, will make Staley's job harder.

Valuation Gap
Price-to-book ratios show Barclays still has to narrow its valuation discount to peers
Source: Bloomberg Intelligence

Barclays still has a list of things to do this year: It wants to shut its non-core bank in June, six months early, following a three-year drive to cut 85 billion pounds of assets. It also plans to sell down its African subsidiary to free up cash. Both are crucial steps to boosting the firm's profitability and narrowing the stock's 30 percent discount to book value.

The tough outlook hasn't gone away. Revenue momentum is mixed. The potential for more legal costs is still there -- the bank is still fighting a lawsuit from the U.S. Justice Department over pre-crisis mortgage trades. British rules forcing banks to ring-fence their consumer units will be an additional cost as the economy slows.

Barclays' return on tangible equity of 3.6 percent should improve as the costs of the restructuring tail off, but for now it looks weak. The bank has cleared some big hurdles, justified its own strategy and held on to share-price gains. Things may yet get harder from here.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Lionel Laurent in London at

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