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Will a bad bank & job cuts help Barclays?

Thursday, May 08, 2014 - 02:37

May 8 - Britain's Barclays has reined in its ambitions to be a Wall Street powerhouse, signalled a return to its retail banking roots with a plan to hive off much of its investment bank and axe one in four jobs at the division. Joanna Partridge reports looks at whether their strategy has come too late.

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Buffeted by scandals from interest rate rigging to mis-selling payment protection insurance. And now revenue has slumped at Barclays. To turn things around, CEO Antony Jenkins has announced his third strategic review - including chopping 19,000 jobs over the next 3 years. 7,000 of those are going from its investment bank. Jenkins will also park around 90 billion euros of the investment arm's assets in a new "bad bank" SOUNDBITE: Antony Jenkins, CEO, Barclays, saying (English): "It's about creating a core business with four strong units within it, our corporate and retail business, our credit card business, Africa and our investment bank. And then everything else in Barclays will go into what we're calling the non-core, and that will be run off or exited over time. And there's one other important thing itself, the investment bank itself will be no more than 30% of the Barclays group going forward." This move sees Barclays retreat from the most controversial part of its business, which was once its profit engine, says George Hay from Reuters BreakingViews. SOUNDBITE: George Hay, European Financial Editor, Reuters BreakingViews, saying (English): "The key thing he's done today is to say ok, almost half of the risk-weighted assets in the investment bank, all those assets, we're just going to run them down, they're not part of the main bank anymore. Now investors will be able to look at that and say we can now see what Barclays could and should look like in a couple of years' time." Jenkins was brought in in August 2012. He had a retail background and is now unpicking the legacy left by investment banker Bob Diamond. But Jenkins hasn't had an easy ride, angering shareholders last year with his decision to raise bonuses despite falling profits. He's been forced to step up the pace of his plans due to the slide in investment bank trading, says Brenda Kelly from IG. SOUNDBITE: Brenda Kelly, Market Strategist, IG, saying (English): "I think perhaps Barclays are ever so slightly late in doing this. This was something that was purported that should be done perhaps about three years ago. Fixed income is one area in several banks which is falling quite hard, so I think the separation that Barclays is trying to do is going to be quite difficult for them because they are known primarily as the fixed income house." Shareholders seemed to like what they heard, and Barclays stock rose by over 5%. But the results of this review won't be felt for some time. And Barclays's rival Standard Chartered shows how even banks with a different focus are finding trading tough. StanChart, which earns most of its income in Asia, blamed tough market conditions and slides in Asian currencies for a fall in profit. HSBC also suffered a 20% dip in first quarter profit due to falling earnings in Brazil and at its investment bank.