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In a management update to the London Stock Exchange late last week, the bank said it will focus on international banking in four core divisions, consolidating the rest of its businesses into a £400bn ‘bad bank’ to be run down or sold.
Barclays chief executive Antony Jenkins said the decision is “a bold simplification of Barclays”.
We will be a focused international bank, operating only in areas where we have capability, scale and competitive advantage,” Mr Jenkins said.
“In the future, Barclays will be leaner, stronger, much better balanced and well positioned to deliver lower volatility, higher returns, and growth.”
The UK bank has seen its revenue slide by 41 per cent, the largest fall among Britain’s banks, according to Warwick Business School assistant professor of finance Lei Mao.
The response of Barclays to cut its investment bank section is timely,” Mr Mao said.
“Almost all European banks are not performing well in fixed incomes like bonds and in currencies and commodities, but Barclays’ loss of revenue in this sector is the most significant, with it falling by 41 per cent,” he said
“Barclays is not likely to reverse the diminishing trend of this business as the whole market is on a downturn because of uncertainty over interest rates and electronic trading taking over.”
News of the job losses comes just two weeks after Barclays told shareholders it must pay bigger bonuses to remain competitive.
As reported by Mortgage Business on April 28, Barclays chairman Sir David Walker said at the group’s AGM that Barclays’ business was targeted aggressively by competitors keen to poach staff, and must therefore increase pay to retain its best employees.
But the tables have turned, with the bank now announcing huge redundancies across all divisions, starting with 2,000 by the end of the year.
According to Warwick Business School’s Mr Mao, the contraction and simplification seems to be a pervasive trend in the industry.
“To cut 19,000 seems radical and will be a long and painful process, but it is part of the trend in the industry,” he said.
“Also, by significantly shrinking the size of its investment bank, Barclays is adapting to the changing market conditions and will save a huge amount in wages for the shareholders.”
Barclays has until now been in a dramatic shareholder revolt led by Standard Life, one of the bank’s largest institutional investors, over its plans to increase pay.
Competitors on both sides of the Atlantic had aggressively attacked Barclays’ decision to increase banker bonuses.
The increased bonus pool at Barclays alone, most of which is earmarked for investment bankers, is equivalent to 1.7 per cent of the investment bank’s risk-weighted assets.
Now, with 19,000 job cuts on the chopping block, Barclays will refocus on the retail banking sector.
“As the UK economy slowly improves, the prospects in the retail banking sector look good and this is a safe area for Barclays to spend its effort to increase revenue,” said Mr Mao.
“Bundling its investment bank assets and its European continental business into a ‘bad’ bank is another sensible decision,” he said.
“The purpose of such a strategy is to shield the good assets – the retail banking business in UK and Africa - from the bad assets that will be bundled into the bad bank.
“As a result, the high risk in these bad assets will not negatively impact the good assets.
“The bad bank may not perform well, or may even fail, but Barclays wants to make sure that these possible outcomes will not contaminate its core retail banking sector.”