Barclays Plans to Split the Investment and Retail Banking

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Former CEO Robert Diamond’s exit after the Libor scandal has put Barclays PLC (NYSE:BCS) in panic mode. Company directors are evaluating the option of splitting Barclays into investment and retail banking, and listing the investment bank on the New York Stock Exchange, the Sunday Times reported, citing company insiders. The retail banking division would remain listed in London.

Diamond, who took over the helm of Barclays PLC in 1997 and built the company’s investment business from scratch into a global leader, quit last week. He admitted his role in manipulating the Libor rates and paid a fine of $455 million. However, investigations reveal that Diamond was not solely responsible for the scandal, and the former director of Bank of England has hinted that Barclays PLC  was pressured to cut the Libor rates.

Political pressure is mounting on the company after the interest rate debacle, the argument being: savers and taxpayers should be fully protected from the speculative activities of the investment banking division.

“Now is a very sensible time to pause, draw breath, assess what’s happened and look again at this question of a ring fence or separation,” said Clive Hollick, a member of the House of Lords Economic Affairs Committee told Bloomberg.

The U.K. Treasury is planning to bring a regulation that banks and financial institutions should build a firewall between their investment banking and consumer banking operations. The Governor of Bank of England stated on June 9, that the Libor scandal demonstrates that the regulation should be implemented as soon as possible.

By the end of last year, Barclays’ investment banking division had 24,000 employees, and the division recorded a net profit of 2.97 billion pounds in 2011.

However, not everyone favors a split of Barclays. “I think they should sit back and relax. The investment bank is a top three in the world, no argument about it. Why on earth, having made this investment and a very good acquisition of Lehman Brothers, would someone come in and change their strategy?” Says Christopher Wheeler, an analyst at Mediobanca SpA.

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