Abigail with attitude: RIP – Barclays as a global securities player

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Jenkins is at a dead-end. This is what happens when you have no strategy and just muddle through instead of taking the necessary and painful decisions.

Has the dream ended for Barclays? Bob Diamond’s dream of creating a global securities player seems to be turning into a slow-motion car crash – not least for the incumbent chief executive, Antony Jenkins. In early May, Jenkins announced a savage cull of the investment bank. Seven thousand jobs are to go and £400 billion ($672 billion) of assets will be moved into a non-core division. The goal is for investment banking to contribute some 30% of group risk-weighted assets rather than the current 50%.

 Antony Jenkins is at a dead end
"Jenkins is at a dead-end. This is what happens when you have no strategy and just muddle through instead of taking the necessary and painful decisions"

In his strategic update – is that the second or third since he ascended to the top chair less than two years ago? – Jenkins warbled about making Barclays a "focused international bank". Barclays will now have four core divisions: personal and corporate ( which includes wealth management), Barclaycard, the investment bank, and an Africa division. Reading between the lines, Barclays is abandoning its global mandate and quietly deflating its Asian aspirations. The investment bank will concentrate on the UK and the US.

I have to admit to being shocked by this volte-face. It was only in February, after reporting disappointing profits for the fourth quarter of 2013, that Jenkins was insistent that he needed to pay big bonuses to retain talent. A mere 12 weeks later, he is cutting through the investment banking ranks with a scythe and wreaking havoc on morale. This doesn’t add up to a well-thought-out strategy. I smell panic and a reactive attempt to pacify critics. Another chief executive grumbled to me: "Jenkins is at a dead-end. This is what happens when you have no strategy and just muddle through instead of taking the necessary and painful decisions."

In previous comments concerning Barclays, I had complained that investors could expect no real change in culture at the investment bank while Diamond’s henchmen were in charge. And indeed, I consider it a sign of weakness that Jenkins permitted these men to continue at the top of the securities’ unit. 

I understand that, as a commercial banker, Jenkins didn’t want to rock what seemed like a successful boat. However, this inability to bring in his own team has undermined Jenkins’s credibility. And one by one, the old guard are melting away. Rich Ricci, the former co-CEO of Barclays Capital, left last spring. Hans-Joerg Rudloff resigned as chairman of Barclays’ investment bank this February. 

Now Robert Morrice, chief executive of the Asia region – a close colleague of Diamond at both Morgan Stanley and Barclays – is off. Skip McGee, who helped negotiate the sale of Lehman’s broker-dealer operation to Barclays, skipped out the door in April. McGee goes a year after he was appointed to the role of head of the Americas. And finally, Eric Bommensath, another longstanding Diamond ally, is leaving the investment bank to run the non-core businesses and will step down from Barclays’ executive committee. As one mole muttered: "I don’t see Bommensath as being long for this world."

So that means that Tom King, formerly a Citi advisory banker, who joined Barclays in 2009, is now chief executive of Barclays’ investment bank. If I can read through Barclays’ PR puffery, the bank seems to be positioning itself as an equity and corporate finance player rather than a FICC flow monster. Nevertheless, Barclays suggests that half of the income for the new investment bank-"lite" will come from the fixed-income area.

Will this turn out to be achievable? Indeed, will Jenkins’s aim of a 12% return on equity from the core bank turn out to be anything more than a good intention?

Rump business

I am reminded of a reorganization by a previous chief executive. In 1998, Martin Taylor stunned the market when he disgorged the equity and corporate finance operations of the former BZW to Credit Suisse. Taylor, however, kept Barclays’ fixed-income division, which at that time was little more than a gilts market-maker with add-ons. Bob Diamond seized the opportunity with both hands and built up the rump business, which he named Barclays Capital, to the stage where his operations accounted for 50% of group profits.

I lunched with a mole who runs a big investment banking business on Wall Street. He was quite negative on the outlook for Barclays’ investment banking business. First, he claimed that "stuck in the middle" is not a good strategy. Barclays will no longer be big in fixed income nor will it be truly global given that it is retreating from Asia and Europe. Moreover, the recent exodus of ex-Lehman senior bankers from Barclays will prove problematic for both morale and client coverage. 

Ros Stephenson, (chairman of the investment banking division), Paul Parker (head of M&A) and Larry Wieseneck (head of global distribution) have all joined McGee in an exodus of former Lehman employees. Presumably, when they settle into their new homes, they will look to poach junior Barclays’ colleagues. So it looks as if Saint Antony might have paid out big bonuses in 2013 for nothing. The burden of holding the new investment bank together falls on King, but, as he is not a Lehman man, will he be able to count on Lehman loyalty?