Barclays has announced it is cutting 19,000 jobs by 2016, as part of its new strategy, 7,000 of these will be in its investment bank. Barclays (BARC) also revealed details of plans to ring-fence some of its debts in the form of a ‘bad bank’.
Chief executive Antony Jenkins called the plans a “bold simplification of Barclays”.
"We will be a focused international bank, operating only in areas where we have capability, scale and competitive advantage,” he said.
“We will refocus and resize our investment bank to bring balance to Barclays," Jenkins told analysts and investors. "As currently constituted, it is an unacceptable drag."
Morningstar analyst Erin Davis said that while a drop in profits in Barclays' investment bank isn't surprising – all of its peers have reported weak fixed-income, currencies, and commodities trading in the first quarter – the size of the drop indicates that Barclays may be losing market share.
“Adjusted for own-debt noncash charges, Barclays reported pretax profits of £882 million for the first quarter, down 13% from the year-ago quarter,” said Davis “The 49% drop in pretax profits at the investment bank hurt profits this quarter, but Barclays had good results across the rest of its strong businesses.”
The scale of the problems at the investment bank are larger than analysts expected however.
Key staff members have left Barclays during the month leading up to the strategy update, which probably disrupted operations and customer relationships. For long-term investors, Morningstar analysts like the direction.
“Barclays is going, more focus on retail and corporate banking will should steadier and higher returns,” said Davis. “Barclays has been slow to realise that investment banking isn't the profit powerhouse it once was, in our opinion, especially since it hasn't been able to adjust compensation levels to offset higher capital costs.”
Guy de Blonay, manager of the Jupiter Financial Opportunities Fund said investors have been concerned for some time that the investment bank was taking too much capital for a poor return.
“They have been complaining that the capital allocation was not adequate. The job cuts announced, especially in the light of the investment bank’s disappointing first quarter performance, only serve to confirm that their concerns were justified,” he said. “At the same it also serves to address those concerns as it reduces the size of the investment bank quite significantly, enabling Barclays to allocate less capital to its investment bank and potentially putting it in a position to give more back to shareholders.”
