BARCLAYS Bank yesterday unveiled a new strategy that will concentrate on UK retail and corporate banking, and Africa. The bank will slash its investment banking division, form a bad bank with its dud assets, and sell unprofitable divisions in continental Europe and Asia.
Initial reaction in the market was positive as the bank's shares surged more than 6 per cent to 259 pence, before falling back to around 254 pence.
CEO Antony Jenkins - who recently fought a shareholder revolt against large bonuses in the face of poor results - disclosed grimly in a statement that the bank will lay off some 19,000 employees, or about 14 per cent of the total workforce, in the next three years.
Of these unfortunate bankers, some 7,000 will lose their jobs in the investment bank - which was a favourite of Mr Jenkins' predecessor, Bob Diamond. Of the total, around 14,000 will be seeking jobs elsewhere this year.
In the statement, Mr Jenkins said that Barclays will be a focused international bank, with four core businesses: retail, corporate and wealth businesses, mainly in the United Kingdom; Barclaycard; Africa Banking; and a much smaller risk-averse investment bank focusing on equities, credit and foreign exchange.
The CEO said that the financial climate had deteriorated for the FICC (fixed income, currencies and commodities) business. Some of the pressures in the business "are clearly structural as well as cyclical", notably lower bond yields and volatility. The plan is that the investment bank will account for a maximum of 30 per cent of Barclays' risk- weighted assets compared with the current proportion of 50 per cent.
The cutback follows a 41 per cent slump in FICC trading in the first quarter this year and a slide in pretax profit at the investment bank to £668 million ($1.41 billion) in Q1 from £1.32 billion in the same period a year ago. The U-turn in strategy implies a virtual end to Mr Diamond's former ambitions involving the acquisition of the crisis- ridden Lehman Brothers' US operations in 2008.
To improve investor sentiment, Barclays is following banks such as UBS and establishing a new "non- core" division - a euphemism for a bad bank. Some £90 billion of risk assets, notably commodities, emerging market products and derivatives with a leveraged exposure of about £400 billion will be transferred to this unit.
The bad bank will also include £16 billion of assets from Barclays' European retail banking operations in Italy, France, Spain and Portugal, and £9 billion of corporate and Barclaycard assets. The intention is to sell all or parts of the European operations.
Eric Bommensath, currently co-head of the investment bank, will run the bad bank. Tom King, Mr Bommensath's co-head, will take over sole responsibility for the investment bank. Key executives who have departed from Barclays include Hugh "Skip" McGee, Barclays' American chief executive; Robert Morrice, chairman of the Asia-Pacific region; and investment banking chairman Ros Stephenson.
The overall aim is to achieve a return on equity in its core business of over 12 per cent compared with only 4.5 per cent last year with a dividend payment of around 45 per cent of net profit, Barclays stated. Barclays will incur a further £800 million expense to carry out its strategic plan, over and above the £2.7 billion disclosed last year.
"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."
So far, investors have taken the beleaguered chief executive at his word.