Barclays PLC (NYSE:BCS) (LON:BARC) signaled a return to its retail roots by slashing much of its investment bank and parking 400 billion pounds of assets in a new ‘bad bank’.
Its carve-up plan will provide enhanced prominence to Barclays’ retail operations in the UK, its Barclaycard credit card arm and its African business.
Jenkins forced to take knife to the investment bank
Last month it was reported that the British bank would announce the intended creation of a bank housing the sub-par returning assets from the investment bank and exit retail assets in non-UK RBB. Deutsche Bank analysts pointed out that the investment bank is the driver of the y-o-y decline in adjusted profit versus a ‘resilient performance’ in non-IB businesses.
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Thanks to a slide in trading revenue due to investor uncertainty and tough post-crisis regulation combined with a string of senior staff departures and a row with shareholders over bonuses Barclays PLC (NYSE:BCS) (LON:BARC)’s CEO Antony Jenkins has been forced to take a knife to the investment bank, built up under predecessor Bob Diamond and once the firm’s profit engine.
The CEO told analysts and investors: “We will refocus and resize our investment bank to bring balance to Barclays. As currently constituted, it is an unacceptable drag.”
Barclays’ restructuring positive
Barclays PLC (NYSE:BCS) (LON:BARC)’s CEO defended his plans for job cuts and bonuses. He told CNBC: “This is about Barclays’ future as a balanced and international bank”. He said: “Regulation has become much clearer and the impact of regulation on the investment banking business. We also believe that the economic environment has depleted for the fixed income, currencies and commodities (FICC) business. Some of the problems are structural as well as cyclical.”
Joseph Dickerson of Jefferies in a report published today pointed out Barclays PLC (NYSE:BCS) (LON:BARC)’s announced restructuring is positive in that the group will finally exit the Europe Retail business and cut underlying I-bank RWAs by a further 25% such that the capital associated with this business will contribute no more than one-third of group total in 2016.
The Jefferies analyst estimates that the group of businesses now considered core generated 30p of EPS in 2013, and it seems likely they can deliver 36p in 2016 given the bank’s high level guidance.