* Investment bank dominates too much - investor
* Jenkins seen cutting investment bank 10-20 pct -analyst
* Bank faces backlash over bonuses at AGM April 24
By Steve Slater
LONDON, April 15 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."
Despite his description of the investment bank as "an
essential part" of Barclays, investors and analysts expect
Jenkins, a retail banker, to pull out of areas where the bank
lacks the scale to compete against Wall Street majors.
"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.
"The problem at the moment is it dominates too much. Not
only from a capital and product point of view, but also from a
sentiment point of view ... everyone spends all their time
focusing on the investment bank and not saying what a great
business Barclaycard is," Moss said.
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, people familiar with the matter said.
It has been an uncomfortable 10 months for Jenkins, 52,
dubbed "St. Antony" in the City of London for his pledges to
tackle the ills of banking and reform Barclays after a string of
scandals. He had to raise 5.8 billion pounds ($9.7 billion) from
investors last year to bolster capital and remains under
pressure to reduce the bank's leverage and assets.
A problem facing Jenkins is holding on to big revenue
earning bankers while trying to cut costs. He is expected to
continue to pay up to keep star performers but they will also
want reassurance that this third review is the last.
Barclays lost a trio of senior U.S. bankers in August -
James Ben, Peter Moses and David Baron who decamped to
Rothschild with resumes that included work on some of the
biggest U.S. 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
U.S. 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
Pension and Investment Research Consultants (Pirc) and the
Local Authority Pension Fund Forum (LAPFF), two leading advisory
groups, have urged shareholders to reject Barclays' pay plans.
Barclays on Tuesday sought to take the sting out of the row
by appointing Crawford Gillies to take over as chairman of its
remuneration committee to replace John Sunderland, its head for
the past two years, who has been criticised for failing to
"Public opinion is clear that what Barclays has tried to
do with bonuses epitomises an excessive bonus culture in
banking. We hope that with Sir John (Sunderland) moving on they
will reassess things so that this year's and future bonuses will
be in line with legitimate returns to shareholders," Kieran
Quinn, chairman of LAPFF, said.
THOUGHTFUL AND APPROPRIATE
Barclays is not alone in having to scale back investment
banking. All banks, grappling with regulations to strengthen
them after the financial crisis, have to hold more capital
against some operations. This has made many business lines
unprofitable for any bank outside the top five in that area.
Banks have also been hit by a slump in revenues for fixed
income, commodities and currencies as low volatility hurts
trading, and many bankers see that decline as permanent.
Barclays ranked fourth in this business last year with 10.2
percent of revenues for the top dozen firms, according to
Reuters data, down from 11.1 percent in 2012 and extending a
slide since 2008.
Its equities and advisory revenues have climbed in the last
three years and it took more than 8 percent of the top 12 firms'
revenues in both areas last year. Those areas are also less
capital intensive, so returns should be higher.
Barclays is expected to stick with its areas of strength,
including rates trading, where it was second behind JPMorgan
last year, and foreign exchange, municipal finance,
futures and options, M&A advisory and debt capital markets,
where it ranked 4-6 globally, according to investment banking
But analysts expect cuts in areas like credit trading,
emerging markets, securitisation, structured credit and equity
derivatives. It has already pulled back in commodities and it is
considering selling its index business.
It is also likely to pull back harder from Asia, extending a
retreat last year that left it largely focusing on serving U.S.
and UK corporates there. But it is expected to continue building
up in Africa, where it regards it has a competitive advantage.
Barclays declined to comment on the details of the review,
but executives have signalled it will be significant.
"You do this once and only once, and it needs to be
thoughtful, appropriate and correct," Finance Director Tushar
Morzaria, who joined from JPMorgan last year, said in February.
($1 = 0.5976 British Pounds)
(Additional reporting by Chris Vellacott. Editing by Carmel
Crimmins and Jane Merriman)