Barclays Plc (BARC) will cut 7,000 jobs at its investment bank, about a quarter of the total, as Chief Executive Officer Antony Jenkins tries to revive profit by reducing the lender’s dependence on the unit.
The bank will eliminate 14,000 positions across the firm this year, up from the 12,000 cuts it announced in February, Barclays said in a statement today. The company will create a bad bank to dispose of 115 billion pounds ($195 billion) of assets, including parts of its fixed-income, currencies and commodities derivatives operations as well as its European consumer arm. The plan will cut the investment bank’s share of the firm’s assets to 30 percent by 2016 from about 50 percent.
Jenkins, a consumer banker by training, has been under pressure from investors to scale back the investment bank, which this week posted a 49 percent drop in pretax profit. He’s starting to dismantle the fixed-income dominated investment bank created by his predecessor, Robert Diamond, as investors reward lenders that scale back in that area.
“The revised strategy is sensible and should be well received,” Andrew Coombs, an analyst at Citigroup Inc. in London, wrote in a note to clients. “The shift in business mix from investment banking toward retail and commercial could potentially lead to a re-rating in Barclays’ shares.”
Barclays — before today, the worst performing bank stock in Britain — rose as much as 3.8 percent and were up 7.90 pence at 251.20 pence as of 8:24 a.m. in London trading. By contrast, Switzerland’s UBS AG (UBSN) has gained 8.6 percent this year in Zurich after saying it would exit most debt-trading.
“We will be competitive as we are today,” Jenkins said in an interview with Bloomberg Television’s Francine Lacqua today. “We are focusing on where we can compete, and compete successfully.”
The bad bank will hold 90 billion pounds of risk-weighted assets from the investment bank, including parts of its fixed-income, currencies and commodities operation, as well as some emerging-market specific products. It will also include 16 billion pounds of assets from the European retail and business bank as well as 9 billion pounds of assets from the corporate bank, Barclaycard and wealth-management units.
Jenkins will seek to cut the so-called non-core assets to 50 billion pounds by the end of 2016. The remaining bank will target a 12 percent return on equity in 2016. The overhaul will cost an additional 800 million pounds, adding to the 2.7 billion pounds the bank announced in February.
“While its commendable that management has gone the distance, unfortunately without any macro tailwinds, it will be painful for the next 12 to 18 months,” said Chirantan Barua, an analyst at Sanford C. Bernstein Ltd. who rates Barclays market-perform. “You can’t have 7,000 people walk out the door without any implications on income.”
Pretax profit at the investment bank fell to 668 million pounds in the first quarter from 1.32 billion pounds in the year-earlier period, hurt by a decline in revenue from trading bonds, currencies and commodities.
The operation has suffered departures of key dealmakers as compensation at the division came under scrutiny. In the past week, Jenkins has lost Hugh “Skip” McGee, the firm’s most senior banker in the U.S., Robert Morrice, chairman of the Asia-Pacific region, as well as investment-banking chairman Ros Stephenson.
Jenkins said in the Bloomberg Television interview today the departures were unconnected to the job cuts and marked a “generational shift.”