Barclays' identity crisis

Peter Lee
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One year on from its big restructuring announcement, Barclays is still struggling to convince that it has found the right model. Investment banking remains the sticking point. Senior executives in the division say they’ve pulled off a £100 billion restructuring and improved the client franchise. They want to invest for growth. But sceptics say that bull market conditions and accounting sleight of hand have flattered results and the investment bank needs to become even smaller and more focused. The instinct of chief executive Antony Jenkins may be to give the investment bank more time. Shareholders and the new chairman may not be so patient.

barclays identity crisis 
What better way for a bank chief executive to see the markets celebrate the first anniversary of his signature restructuring announcement than with a one day rise of close to 4% in the share price? When Barclays shares shot up on May 20 this year, from £2.60 to £2.71, the discount to book value narrowed to 0.93 from 0.90, inching chief executive Antony Jenkins closer to erasing a glaring and embarrassing signal of investor distrust over the bank and one that he had set out to tackle on May 8, 2014. 

Many of the European banks that traded at far below book value in the worst days of the eurozone crisis have long since recovered to trade at, or above, book. Barclays has been a laggard, largely because of fears of large litigation costs and weak earnings at its investment banking division.

It’s worth remembering that when Jenkins became chief executive of Barclays three years ago, following the ouster of Bob Diamond over the Libor scandal in summer 2012, many analysts and investors had feared that this retail banker would dismantle the UK’s only competitor as a global investment bank and, cowed by the political furore over Libor, destroy or divest its biggest earner.

Jenkins is the classic battlefield promotion. As the top echelons of Barclays’ senior management gathered in Canary Wharf on that fateful day in 2012, struggling to come to terms with the departure of their leader Bob Diamond – which had become inevitable following the intervention of then Bank of England governor Mervyn King – there was an almost comic moment. "Has anyone told Antony?" asked one voice. "Somebody should call him and let him know."

One of the corporate staff had to track down Jenkins, head of Barclaycard and of retail and business banking at the 325-year old British bank, the only remaining member of Barclays’ senior management not a fully paid-up member of Diamond’s cabal since they had seen off Frits Seegers as head of retail banking in 2009, and tell him that he was now the last man standing.

Antony Jenkins, chief executive, barclays
When I look at the investment bank’s place in the Barclays group as a whole, I feel positive that we have scale, capability and competitive advantage in investment banking and that important clients need those services

Antony Jenkins

In the months that followed, now chief executive of the whole bank, Jenkins refused to take revenge on the survivors of a club that had excluded him. Those who work with him variously describe Jenkins as intelligent, considered, private, cold, decent, honourable. What has he learned about investment banking since becoming chief executive of Barclays?

"One point that has been consistently reinforced is that while a few parts of investment banking activity can sometimes be derided as being of limited benefit to society, that is certainly not what I believe and it’s not the case across the business lines I witness when I visit clients: insurance companies that need to invest and earn returns; corporations that need to raise capital, hedge their risks, transact in foreign exchange markets to conduct international trade. What we have sought to do with the investment bank is remove those parts that don’t benefit society – so the tax structuring business, prop trading, structured derivatives – and concentrate only on those that benefit clients.

"And when I look at the investment bank’s place in the Barclays group as a whole, I feel positive that we have scale, capability and competitive advantage in investment banking and that important clients need those services."

But by 2014, certain realities were becoming clear. New capital rules had destroyed the profitability of large parts of Barclays’ signature FICC businesses – structured and long-dated rates and credit derivatives, in particular – that had become heavy consumers of capital against risk weighted assets. Pressured over the leverage ratio, Jenkins had had to undertake a £5.8 billion rights issue in 2013, equivalent to 15% of Barclays’ market value, and one that 5% of shareholders decided not to support. 

Jenkins saw that, as a group, Barclays was too exposed to the vagaries of an investment bank which was itself in turn too exposed to the volatility of FICC. He now had decisively to shrink an investment bank that was delivering weak returns – a 5.8% return on equity in 2013 – and overshadowed the whole group, distracting attention from the better-performing retail banking and Barclaycard units, while accounting for more than half of the groups risk-weighted assets.

When he announced a new strategy on May 8, 2014, Jenkins didn’t mince his words. "The broad issues around the investment bank in the current environment are clear: it consumes too much capital; it does not generate sufficient returns for shareholders; and it is too large as a proportion of the group. As currently constituted, it is an unacceptable drag on group returns."