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Barclays Revamps Structure; Draws Some Praise, Share Price Soars
Tom Burroughes
9 May 2014
(Updated to add comments, reaction).
was due to revamp its structure today, involving around 7,000 job cuts at its investment banking arm by 2016 in core and non-core positions, with the overall 2014 group gross headcount reduction increased to 14,000.
The UK-listed bank is to be made up of four main divisions and will also create a non-core arm for assets where returns do not meet its strategic targets, it said in a statement.
The actions mean Barclays expects to incur a further £800 million ($1.36 billion) of costs to achieve its Transform programme, on top of the original £2.7 billion announced in February last year.The firm has, according to its website, a total of 139,600 jobs
Late afternoon on Thursday, Barclays' share price was up almost 11 per cent.
This publication understands that at least as far as this announcement is concerned, wealth management at the bank is unaffected. This side of the bank has, however, already been put through a shakeup as part of Barclays' "Transform" programme.
Barclays’ decision to create a “non-core” entity, or “bad bank”, for assets seen as offering weak returns, and restructure, prompted Robert Lyddon, general secretary of international banking network IBOS, to suggest that the UK-listed bank is focusing more on its domestic, rather than international, markets.
“This is the apogee of the ‘home markets’ strategy, pressed on the UK banks by the government and regulators, and designed to deprive UK businesses of access to normal banking services outside the UK,” he said in an emailed comment to this publication.
“Barclays now adds itself in effect to TSB – the UK’s local bank for local customers – in regarding overseas business as innately speculative and to be avoided, other than in the hermetically-sealed Barclays Capital bank,” he said.
Commenting on job cuts, Mark Littlewood, director general at the Institute of Economic Affairs, a UK think tank, said the announcement was "sad and depressing news". "The authorities are in danger of trying to ensure all banking is safe. Instead, we need to ensure that banks can fail safely and that collapsed banks can be wound up without requiring any support from the taxpayer," he said.
"Contrary to popular belief, financial services are one of the most highly regulated sectors of the economy. This continual trend towards high regulation and high compliance will simply push the investment industry to less heavily regulated countries," he continued. "If we continue to regulate away professional discretion from those working in the City of London, we risk undermining the City and seeing our investment banking sector shrink," Littlewood added.
Such changes highlight the scale of the adjustments that banks, which have seen their old business models hit hard by the aftermath of the 2008 financial crisis and new regulations, have put into place. In the case of Barclays, it has, along with a number of other banks, also had to recover from a damaging interest rate-rigging scandal, ending with resignations of several senior executives.
“Almost all European banks are not performing well in fixed incomes like bonds and in currencies and commodities, but Barclays’ loss of revenue in this sector is the most significant, with it falling by 41 per cent,” Warwick Business School Assistant Professor of Finance Lei Mao, said in an emailed note about the Barclays action.
“The response of Barclays to cut its investment bank section is timely. Barclays is not likely to reverse the diminishing trend of this business as the whole market is on a downturn because of uncertainty over interest rates and electronic trading taking over. The contraction and simplification seems to be a pervasive trend in the industry. To cut 19,000 seems radical and will be a long and painful process, but it is part of the trend in the industry,” he said.
“Barclays focusing on the retail banking sector is a smart move. As the UK economy slowly improves, the prospects in the retail banking sector look good and this is a safe area for Barclays to spend its effort to increase revenue,” Professor Mao continued.
“Bundling its investment bank assets and its European continental business into a ‘bad’ bank is another sensible decision. The purpose of such a strategy is to shield the good assets – the retail banking business in UK and Africa - from the bad assets that will be bundled into the bad bank. As a result, the high risk in these bad assets will not negatively impact the good assets. The bad bank may not perform well, or may even fail, but Barclays wants to make sure that these possible outcomes will not contaminate its core retail banking sector,” he added.
CEO view
The bank’s chief executive, Antony Jenkins, and group finance director Tushar Morzaria were due today to update investors on Barclays’ plans.
Barclays will, the statement said, be a “focused international bank” with four core businesses:
-- Personal and corporate banking: a combination of most of UK retail, corporate and wealth businesses;
-- Barclaycard, which the bank says is “a high returning business with strong and diversified international growth potential”;
-- Africa banking: a “longer term growth business with distinct competitive advantages”;
-- Investment bank: an origination led and returns focused business, delivering banking, equities, credit and certain macro products.
In its announcement today of the “non-core” arm, Barclays said this unit groups together “those assets which do not fit the strategic objectives or returns criteria underlying the strategy review”. Barclays said it will look to exit or run down these assets over time. Barclays Non-Core consists of around £115 billion of risk weighted assets.
"This is a bold simplification of Barclays. We will be a focused international bank, operating only in areas where we have capability, scale and competitive advantage,” Jenkins said.