LONDON: Barclays’ Chief Executive Antony Jenkins is facing a high-wire act to overhaul the firm’s investment bank without undermining a division that contributes about half of group profits.
Jenkins, criticised by investors and politicians for raising bonuses this year despite a big fall in earnings, has embarked on the third review of the investment bank in as many years in response to pressure to cut costs and improve returns, which lag other parts of the business such as Barclaycard.
Analysts predict this might lead to a cut in the investment bank’s size of up to 20 percent. This would equate to about 5,000 jobs going out of 26,000 and could strip out about 900 million pounds in annual compensation costs. “The expectation is for something like a 10 to 20 percent cut (in size),” Chintan Joshi, analyst at Nomura, said. “In the long-term they will have to do more. On a four or five year view, the investment bank could probably halve.”
“We’d like it to be a smaller part of the bank overall,” said David Moss, director of European equities at F&C Investments, which is one of the bank’s top 40 shareholders. Barclays’ investment bank made about half of the bank’s profits last year but it sucks up half of the group’s capital. Its costs rose to 75 percent of income from 65 percent in 2012, and return on equity (RoE) sagged to 8.2 percent, below Barclays’ target of about 10.5 percent and well below the 18 percent RoE for credit card arm Barclaycard.
With income falling, Jenkins is under pressure to show improvement on cost cutting at first quarter results on April 30, although the full investment bank review is not likely to come until May or June.
Barclays lost a trio of senior US bankers in August — James Ben, Peter Moses and David Baron who decamped to Rothschild with resumes that included work on some of the biggest US consumer industry deals.
About 700 bankers are estimated to have left Barclays’ investment bank in the United States last year. Turnover was about 50 percent higher there than normal, and more than 10 percent of senior staff left, about double the usual attrition, people familiar with the matter said.
Some who stayed raised concerns about pay and its top-ranked US oil and gas bankers team almost quit, sources said.
To keep staff on board and avoid what he described as a “death spiral”, Jenkins raised 2013 bonuses for Barclays’ investment bankers by 13 percent despite a 37 percent drop in profits, provoking an outcry among investors, who are expected to air their complaints at the annual shareholder meeting on April 24. Reuters
